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Economy in Brief

Surging Imports Send the EMU Trade Scene Deeper into Deficit
by Robert Brusca  May 16, 2022

The trade balance for the Euro Area fell sharply to 17.5 billion euros in March from 11.3 billion euros in February. These deficits compared to a 12-month average that is in surplus by 0.9 billion euros. And that surplus compares to the previous 12-months when the account was in surplus by 19.4 billion euros. The trade picture has deteriorated sharply and has plunged into deficit on broad-based weakness across the major trade accounts both manufacturing and nonmanufacturing have seen deterioration there's also been deterioration across commodity categories food & beverages, materials, manufacturing, and other products all have seen their deficits worsen. In fact, all of them show year-on-year imports growing more strongly than exports back to at least September of last year. This is not simply an artifact of higher energy prices this is broad based deterioration across the trade accounts.

In March exports rose by 0.9% following a 0.6% rise in February. As compared to a March rise in imports of 3.5% and in February gain in importance of 1.9%.

Looking at the sequential growth rates total exports grow by 14% over 12-months and log a 23% annual rate pace over 6-months and gain at a 24% pace over 3-months. These are strong and accelerating export flows. On the other hand, imports dwarf the export growth rates. Imports grow by 35% over 12-months, at a 50% annual rate over 6-months, then slow to a 33% growth rate over 3-months; that is still substantially higher than the 3-month export growth rate. Both exports and imports are strong; imports, however, are exceptionally strong

We can decompose these flows to some extent and look at manufacturing. Month-to-month manufacturing exports fell by 2.9% in March and rose by 1.4% in February this compares to imports where imports fell by 0.5% in March and were flat in February. Sequential growth rates for manufacturers show exports growing 11% over 12 months, at a 16% pace over 6-months, and at a 9% pace over 3-months. Imports of manufacturers grow 18% over 12-months, at a 24% pace over 6-months and then slow to a growth rate that's even below that for exports at 3.1% over three months – rare import underperformance compared to exports.

Looking at nonmanufactured goods, exports grew 19.6% in March and fell by 3.2% in February. This compares to imports where nonmanufacturers grew 11.7% in March but also by 6.1% in February. Export growth for nonmanufacturers is at 26% over 12 months, at a 59% rate over 6-months and at a 120% rate over three months- those are very strong and accelerating rates of growth. However, the import growth rates far surpassed those for exports. Year-over-year nonmanufacturing imports surge by 85%, over 6-months they gain 124% at an annual rate and that accelerates slightly to a 125% pace over 3-months. Clearly inflation and inflation in commodity prices and oil prices is playing a role in these enormous rates of growth.

Euro area imports have been extremely strong; even where the export flows have been powerful themselves, they are dominated by the increase in imports. This suggests that domestic demand in the Euro-Area continues to be relatively strong. Whatever impact the virus is having across European Monetary Union countries it does not appear to be impeding imports very much or alternatively if there is some impeding of domestic demand it seems to be sequestered in domestic industries while imports flow in to fill the void. The more likely story is that domestic demand continues to remain strong while the export market has been hurt. We know the export market has been injured to some extent because of sanctions on Russia and a number of European countries export more to Russia than The United States and other countries. These sanctions are going to weigh on European exports for some time to come. However, the sanction may not yet play an important role in the trade flows since the Russian invasion of Ukraine only came in late in February; this is the first full month of trade after the war started.

The table also contains export import growth rates for Germany, for France, and for the UK. Across 12 months 6-months and 3-months for these three countries imports generally continue to outpace exports, the same result that we see for the euro area follows for Germany, and France, as well as for EU-nonmember the UK. All of them show 12-month increases in exports that are firm to strong while imports post growth rates of over 20%.

Finland, Portugal, and Belgium display export growth figures at the bottom of the table. They display extremely strong growth in exports, all the annualized growth rates are at 15% or higher. For the three countries over 3-periods (among the nine growth rates) six growth rates exceed 20% at an annual rate.

The impact of inflation and commodities prices on flows is huge. The impact of the war on trade flows should be relatively small in these data since the data are from March and the war started in late February and subsequently sanctions were put on. There are probably bigger effects from sanctions lying ahead. For the time being, the trade picture for Europe is a factor reducing GDP growth as a trade deficit has widened sharply in 2022.

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