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Economy in Brief

EMU Trade Deficit Balloons
by Robert Brusca  June 15, 2022

The trade deficit for the European Monetary Union (EMU) ballooned to 31.7 billion euros in April after logging a 17.8 billion-euro deficit in March. The balance on manufacturing trade slipped to a smaller surplus in April of €20.8 billion, down from €23.5 billion in March; however, the deficit balance for nonmanufacturing trade widened to 52.5 billion euros in April from 41.3 billion euros in March. It's the widening deficit on nonmanufacturing trade that has driven the overall European Monetary Union trade position into deficit, and it is now driving it deeper into deficit.

The EMU deficit has weakened sharply
Over 12 months the average trade deficit for the EMU is a deficit of €3.1 billion that consists of a €26.2 billion surplus in on manufacturing trade and at €29.3 billion deficit on nonmanufacturing trade. Comparing that to the 12-month average for the year 12-months previous, the EMU had posted a €20.4 billion surplus. That was generated by a manufacturing surplus of €30.1 billion versus a nonmanufacturing deficit of €9.7 billion. Compared to those averages, the current balance on manufacturing trade has lost one third of its surplus while the deficit on nonmanufacturing trade has expanded by a factor of 5.5 times.

EMU exports
Rising commodity prices are wreaking havoc on trade positions globally. The EMU area shows manufacturing exports growing at a 12.4% annual rate over 12 months, at 17.4% annual rate over six months, falling off to a 4.4% annual rate over three months. On that same timeline, nonmanufacturing exports grow 35.2% over 12 months, accelerate to a 47% annual rate over six months, and accelerate again to a nearly 72% annual rate over three months.

EMU imports
For imports, the EMU manufactured imports are up to a 23.3% annual rate over 12 months, increase to a 31% annual rate over six months, then fall back to a 17.4% annual rate over three months. Nonmanufacturing imports rise 94.6% over 12 months, accelerate to a 125% annualized rate over six months, and then log blowout growth at a 207% annualized pace over three months. While nonmanufacturing flows are accelerating for both exports and imports, it's on the import side where nonmanufacturing imports have simply gone wild.

Germany, France, and the U.K.
The lower panel of the table shows export and import trends for Germany, France, and the United Kingdom. In two of three cases, imports grow faster than exports by about a two to one margin or more over 12 months. Over three months, once again, import growth rates dominate export growth rates. France shows tighter margins between export and import growth rates although import growth rates continue to dominate export growth rates over all three horizons for France.

Other export trends
Export trends for Finland, Portugal, and Belgium show strong growth for exports. Strength for the period is evident particularly for Finland and Portugal. Finland shows a slowing in exports, but that slowing only takes export growth rates from a 37% pace over 12 months to a 28% annualized pace over three months. Portugal shows exports at a 21.5% pace over 12 months and at a slightly stronger 23.4% annualized pace over three months. For Belgium, there's a clear slowdown in place with exports at a 27.5% pace over 12 months dipping to a 7.6% annual rate over three months.

Exports and imports ride higher on inflation
For the most part, these export and import growth rates show continuing growth although these are nominal figures and inflation is high enough that some of the growth rates are more seriously diminished when expressed in real terms. For the euro area as a whole, the three-month growth rate for manufacturing exports is probably negative in real terms. For the three-month growth rate for manufacturing imports, there is still a strong gain, after inflation. German exports in real terms look like they're close to flat over 12 months and declining over three months. French exports appear to be steady and firm over 12 months, six months, and three months. The U.K. shows export trends in transit from moderate growth to something close to zero over three months. The growth rates logged by Finland and Portugal are still extremely strong when deflated; the export growth rate by Belgium likely falls to a very weak positive number over three months.

Inflation dominates all analysis
Inflation has become a serious issue in terms of trying to understand economic data. Central banks are raising interest rates: the Federal Reserve meets today in a widely anticipated meeting that focuses on the potential for a larger than usual hike in the Fed’s key federal funds rate. The European Central Bank is responding to differential market impacts across bond markets and is implementing a new tool to provide assistance to countries feeling push back from its expected tightening in monetary policy that has yet to begin. Rising interest rates in the U.S. reverberate around the world and create issues for currencies, bond markets, and therefore stock markets- to say nothing of economic growth globally. Eventually we can expect commodity prices to be affected as well, but for the time being commodity prices continue to roar higher partly fueled by food and materials shortages that stem from the ongoing war between Russia and Ukraine. Later today we may have a better idea of where we stand when we see exactly what the Federal Reserve does and what kind of guidance it gives for the future. The Federal Reserve will continue to be a benchmark against which other central banks will have to measure themselves like it or not.

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