Economy in Brief

The deficit on trade in the European Monetary Union in May fell to €0.86 billion from €7.95 billion in April. The deficit decline was the product of trends that we can express in several different ways. • One way to look at it is to chronicle the trade balances by main product types. For example, the balance on manufacturing trade moved into a stronger surplus at €28.2 billion up from €23.3 billion in April. Also contributing to improvement is a smaller deficit in the balance on nonmanufacturing trade that fell to -€29.1 billion in May from -€31.3 billion in April. • Another way to look at the deficit contraction is to note that exports rose by 2.9% in May as imports fell by 0.1%. On a month-to-month basis, exports gained much more traction than imports, which backed off, helping to move the trade balance into a smaller deficit position.

Manufacturing trade Manufacturing trade in May produced an export gain of 2.9% against the rise in imports of 0.4%. Exports dominated the scene, driving the export surplus and manufacturing trade that we referred to above. This compares to April when exports of manufacturers fell by 4.8% and imports of manufacturers rose by 3.6% creating the exact opposite result.

Viewed sequentially, exports are weakening in manufacturing. Still, they rise by 1.7% over 12 months, fall at a 7.6% annual rate over 6 months and then reducing that pace of decline but still falling by 4% at an annual rate over three months. Manufacturing imports on a sequential basis fall by 2.8% over 12 months, fall at a 6.2% annual rate over six months but then rise at a 2% annual rate over three months. Except for the year-over-year changes, import trends and manufacturing are stronger than export trends.

Nonmanufacturing trade Nonmanufacturing exports in May rose by 2.9%, stronger than their 1.3% gain in April. In comparison, imports of nonmanufacturing goods fell by 1.4% in May helping to drive the overall trade picture toward surplus while in April nonmanufacturing exports rose by 1.3% as imports surged, rising by 7.6% month-to-month, sharply widening the deficit.

Sequentially nonmanufacturing exports are strengthening as weakness dissipates. Nonmanufacturing exports fall 10.4% over 12 months, fall at a 9% annual rate over six months and then fall at a 1.4% annual rate over three months. All those flows showed declines in value, but the pace of decline is easing. For imports, there is a more erratic pattern and one that leads to slightly less weakness over three months than 12 months. Still, the data show nonmanufacturing imports are falling at a rapid rate and that helps to contract the deficit on all the horizons. Over 12 months nonmanufacturing imports fall by 26.9%. Over 6 months they fall at an annualized rate of 38.9%; that result was cut nearly in half to a decline of 21.1% at an annual rate over 3 months. Yet, the pace of decline is still very steep- about 15-times-the weakness in nonmanufacturing exports on the same period. A lot of the improvement in trade is on the import side and coming through persistent weakness in nonmanufacturing imports.

Much of the progress in trade that we have seen globally has come on the back of lower commodity prices, explaining the weakness in nonmanufacturing flows. Oil and energy product prices have been weakening. Energy flows were greatly interrupted at the start of the Russia Ukraine war and since then a lot has been done to try to achieve some increases in energy supply and altogether these efforts along with slowing economic growth and what was a warmer than expected winter have helped to contain energy prices. Those prices continued to be soft although OPEC has been making noises that it is ready to take steps to try to firm up prices in the oil market.

Export-import trends in Germany, France, and the U.K. The table contains data for Germany, France, and the U.K. for exports and imports to take a country-specific look at what is going on with trends. In Germany, exports are increasing on all horizons but they steadily slowing from 12-months to 6-months to 3-months. Imports, on the other hand, rise by nearly 4% over 12 months then fall at a 20% annual rate over 6 months and fall at about a 13% annual rate over 3 months- not exactly sequential slowing, but a continued pattern of contraction, nonetheless. France’s sequential trade patterns are less clear for exports where exports rise by 9.5% over 12 months, decline at a 6.5% rate over 6 months and then rebound to grow by less than 1% at an annual rate over 3 months. But same horizons imports are getting progressively much weaker in France as imports fall by 2.4% over 12 months, decelerate sharply to fall at a nearly 30% rate over 6 months and then decline at an expedited 37% annual rate over 3 months. Again, with France the driving force for trade improvement comes from import weakness. The U.K., of course, is not a European Monetary Union or EU member; its exports show clear sequential deterioration along with export growth of 24% over 12 months, an export decline at a 14.6% annual rate over 6 months and then a horrific decline at a 55% annual rate over 3 months. For the U.K. except for the year-over-year result exports are much weaker than imports persistently; U.K. imports fall by 1.2% over 12 months; they fall at a 10% annual rate over 6-months and then at a 7% annual rate over 3 months.

Other export trends At the bottom of the table, we look at export trends in four additional EMU members: Finland, Portugal, Belgium, and Italy. Three of these four show export declines in May. Three of these four show export declines in April; three of the four show export declines over three months. All of them show export declines over six months and all of them show export declines over 12 months. In addition, three of four countries report double-digit export decline over 12-months; only Portugal escapes that fate and does so only technically with 9.9% decline over 12 months. All have double-digit declines in exports over 6 months and all have double-digit declines of 20% or more except Portugal (-15.7%). Three of four have double-digit export declines of 15% or more annualized over 3 months; the exception is Finland that posts the opposite- a surge in exports at a nearly 40% annual rate.

Industrial output in the European Monetary Union in May rose by 0.2%. This is the headline series excluding construction. The gain follows a rise in output of 1% in April and a much sharper fall of 4.4% in March. The incidental growth rate for output in May occurs amid a challenging period for output, a profile that is declining and unraveling at an increasingly rapid pace. Output falls by 2.1% over 12 months; over 6 months it falls at a 4.7% annual rate and over 3 months it falls at a 12.5% annual rate. The trends for output in the EMU are weak.

Quarter-to-date The quarter-to-date result for the headline shows output is falling at a 9.1% annual rate. Manufacturing output falls on the same deteriorating pattern as the headline with progressively deteriorating results. Manufacturing shows output falling at a 13.8% annual rate, two months into the second quarter. Manufacturing is quite weak.

Sectors Turning to sector results, consumer goods, intermediate goods, and capital goods log month-to-month increases in output across the board in May. In April, consumer goods output declines by 2.6% month-to-month, intermediate goods output falls by 0.9%, while capital goods output surges by 14.7% month-to-month. However, in March consumer goods output declined, intermediate goods output declined, and capital goods output plunged by 14.9%. Therefore, the sharp gain for capital goods in April was simply a bounce back from an even sharper loss in March. On balance, the sectors largely show the same deterioration as the headline in manufacturing.

Sectors sequentially Viewing the sectors sequentially, consumer goods output falls 3% over 12 months, falls at a 9.4% annual rate over 6 months and then falls at an 11% annual rate over 3 months. The consumer sector follows the pattern of across-the-board declines and generates a progressive series of decline that has output falls accelerating. Capital goods offer their own twist with a gain of 1.3% over 12 months; that gain diminishes to a rise at a 0.2% annual rate over 6 months and then gives way to a decline of 5.3% at an annual rate over 3 months. Intermediate goods follow with the only exception to the ever-deteriorating trend displayed by the headline, by manufacturing, and by other sectors. However, it's a modest deviation; as intermediate goods output falls on all horizons, it falls at a 5.4% annual rate over 12 months that's reduced to a 4.7% pace of decline over 6 months and then it returns to a 5.4% annual rate decline over 3 months. None of that makes the intermediate good sector look any healthier than the rest of output.

Quarter-to-date by sector On a quarter-to-date (QTD) basis, consumer goods output is falling at a 7.3% annual rate, intermediate goods output is falling at a 2% annual rate, and capital goods output is falling at an 18.7% annual rate. Within consumer goods, consumer nondurables are showing a decline in the QTD at a 9.7% annual rate. That contrasts to an increase in durable goods output that's expanding at a 2.3% annual rate, about midway through the second quarter.

By country... Output trends across EMU members in May show us declines in output in five of the 13 members shown in the table. The largest economies are still reporting gains in May with Germany posting a 0.2% rise in output, France a 1.4% rise, Italy a 1.4% rise, and in Spain a sizable, 8.1% annual rate increase. However, monthly data are ragged and irregular. In April, nine of 13 member countries in the table logged output declines. In March, eight of the 13 countries logged output declines.

Countries sequentially Sequentially EMU countries show output declines over 3 months in 10 of 13 countries. Over six months 7 countries show output declines; over 12 months the same seven countries show output declines. In fact, there are seven countries that report output declines on all three horizons, those are: Austria, Belgium, Italy, the Netherlands, Luxembourg, Ireland, and Portugal. Among those countries, the sequential declines are getting progressively worse in Austria, Belgium, the Netherlands, Ireland, and Portugal.

Isolated strength Only Finland, France and Spain show output increases on all three horizons. Finland shows progressive strength with growth moving up from 0.7% over 12 months to a pace of 3.6% over 6 months to a pace of 9.8% over 3 months. Spain also shows progressive acceleration with output moving from 1.1% over 12 months to 11.4% annualized over 6 months to a pace of 21.8% over 3 months.

Nonmonetary union Europe Clearly weakness in the monetary union dominates strength; it would be surprising to see the strength in these few economies hold up given the weakness and that abounds in the euro area around them. However, at the bottom of the table, we see that there is more strength for nonmonetary union members. Sweden and Norway both show output increases over all three timelines, but persisting growth is not building momentum. The U.K. shows output increases over three months and six months after it logs a 1.2% decline over 12 months.

QTD by country In the quarter-to-date, output is falling in all the members (in the table) except for France and Greece. Finland that has a string of output increases blogs are minus 1% contraction in the quarter-to-date.