The merchandise trade balance deteriorated in December for the first time since last August. The seasonally adjusted shortfall rose from November's downwardly revised €14.4 billion to €18.1 billion, albeit only a 2-month high. Unadjusted, the balance was in an €8.8 billion deficit, matching the level it posted a year ago.

The monthly increase in the red ink was wholly attributable to exports. A 4.6 percent slump was the worst performance since April 2020, just after the arrival of Covid, and easily more than offset a 2.9 percent fall in imports. The latter has declined in each of the last four months. However, unadjusted annual growth of exports now stands at 9.0 percent, finally reversing the gap with imports (8.7 percent).

Of note, with a deficit of fully €653.6 billion in calendar 2022, up from €285.8 billion in 2021, the energy sector accounted for more than 75 percent of the €486.3 billion deterioration in the overall trade balance last year.

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.