EMU: Merchandise Trade

Fri Sep 15 04:00:00 CDT 2017

Actual Previous Revised
Level E18.6B E22.3B E21.7B
Imports-M/M 0.7% -4.1%
Imports-Y/Y 8.2% 6.2% 6.4%
Exports-M/M -1.1% -1.9%
Exports-Y/Y 6.1% 3.9%

The seasonally adjusted trade balance was E18.6 billion in the black in July, down from a smaller revised E21.7 billion in June and matching a 5-month low. Unadjusted, the surplus weighed in at E23.2 billion, also a decline versus the E24.8 billion posted a year ago.

The deterioration in the adjusted headline reflected a 1.1 percent monthly drop in exports, their third fall in the last four months, compounded by a 0.7 percent increase in imports. Unadjusted annual growth of exports now stands at 6.1 percent after 3.9 percent in June while imports are 8.2 percent higher on the year after a 6.4 percent gain last time.

The trade balance has been consistently in surplus since early 2009. However, what had been a steadily rising trend in the black ink since then peaked in May last year (E24.9 billion) and has flattened out at lower levels since. Total net exports did contribute 0.4 percentage points to quarterly real GDP growth in January-March but that was the first positive reading in a year and last quarter the boost was just 0.1 percentage points.

The July data provide an early warning that the impact this quarter is likely to be only a small plus at best and, quite possibly, negative. This would leave Eurozone policymakers all the more wary about any further the rise in the euro and increase pressure on domestic demand to keep the economic recovery going at a respectable pace.

The merchandise trade balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. For the Eurozone, monthly data are available for trade in goods; statistics on services are released as part of the overall quarterly current account report. The headline trade data are not adjusted for seasonal factors and so should only be viewed in relation to the outturn a year ago. However, seasonally adjusted figures available elsewhere in the report do allow for monthly comparisons.

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 the value of the local currency dollar in the foreign exchange market.

Imports indicate demand for foreign goods and services. Exports show the demand for Eurozone goods in countries overseas. The euro can be particularly sensitive to changes in the balance since a trade deficit/surplus can create greater/reduced demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of EMU 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.