The seasonally adjusted trade deficit narrowed sharply in May. From a smaller revised E4.85 billion in April the red ink shrank to E2.84 billion, the smallest shortfall since August 2015.
The headline improvement reflected a 1.4 percent monthly rise in exports to a 3-month high and a 3.5 percent fall in imports to their lowest level in nine months. The bounce in exports was helped in no small way by the delivery of the Harmony of the Seas, the world's largest cruise ship, alongside gains in military, pharmaceutical and agricultural products. Imports were depressed by a sharp drop in aeronautical purchases.
Despite the decrease in May, at E46.51 billion the cumulative trade deficit over the first five months of 2016 was still slightly above the E45.99 billion posted over the same period last year. Volatile oil prices have distorted the monthly profile but underlying trends continue to raise a question mark over the competitiveness of the French export industry.
Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. In France the main focus is the balance on trade in goods.
Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets. Given the size of the French economy, the euro can be sensitive to changes in the trade balance. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.
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