Export Trends Are Faltering in Europe As Imports Sustain

European exports fell across the board in March as imports were steady. This plunged the trade balance back into deficit. Sequential growth rates are still upbeat with exports accelerating over 12-mo to 6-mo to 3-mo. But imports are accelerating even faster on this sequence. Over a broader swath of time the Yr/Yr trends show that imports are outpacing exports and that import growth has been firmer while export growth is fading (see chart). Indeed, there is no reason to believe the message in the short-term sequential growth rates since the euro keeps climbing and undermining export growth prospects. Also growth surveys in Europe are getting progressively weaker. We did get a surprise pop in GDP growth in 2008-Q1 – but would you want to take that one to the bank?

Euro- Japan growth figures are less prone to adjust for the extra leap day that we had in the first quarter. Moreover, GDP’s ‘resilience only implies that the effects of the slowdown are being gradually phased in. Weakness in orders and in consumer confidence will lead to weaker economic growth overall in Europe. Sometimes the lag between what the surveys predict and what happens is longer than expected, but the survey message is clear and so widespread it is unlikely to be wrong.

While Germany’s DIW has hiked its growth outlook for German growth in Q2, maybe it should be cutting it instead... Often unexpected strong growth turns out to have borrowed growth from subsequent quarters. One thing it does is to RAISE the level of spending to a point that if spending goes back to trend a downside growth number will emerge in the next quarter – that’s the arithmetic of it. In the case of Germany and Europe I think that sort of a setback – or something even more dramatic-- is a likely outcome in 2008-Q2.