EMU: Merchandise Trade

Thu Feb 15 04:00:00 CST 2018

Actual Previous Revised
Level E23.8B E22.5B E22.0B
Imports-M/M 0.9% 1.6% 2.8%
Imports-Y/Y 2.5% 7.3% 8.6%
Exports-M/M 1.7% 3.7% 4.1%
Exports-Y/Y 1.0% 7.7% 8.5%

The seasonally adjusted merchandise trade balance recorded a E23.8 billion surplus in December. This followed a slightly smaller revised E22.0 billion excess in November and put the calendar year black ink at E238.1 billion, a 10.2 percent decline versus 2016.

The December improvement reflected a 1.7 percent monthly rise in exports to a new record high of E192.3 billion. This was their fourth gain in the last five months and more than offset a 0.9 percent advance in imports which also registered a new all-time peak of E168.5 billion. Calendar distortions saw unadjusted annual growth of exports drop from 8.5 percent to 1.0 percent and of imports fall from 8.6 percent to 2.5 percent.

Last year was another good one for Eurozone net foreign trade despite the negative effect of higher oil prices. Even so, the surplus continues to be dominated by Germany and total real net exports probably made only a broadly neutral contribution to 2017 real GDP growth. As such there is a risk that further, sustained, euro appreciation could damage competitiveness to the extent that economic growth is impaired. With recent euro developments already undermining the ECB's efforts to meet its inflation target, the FX market could become a major factor in European monetary policy over coming quarters.

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.