Wednesday, August 20, 2014

Preliminary Macro: Rising Euro-zone Trade Surplus is Good or Bad News?

Reading "Euro zone trade surplus rises more than expected in June" in uk.reuters.com, we may feel either happy or concerned or indifferent. Since the trade surplus has, per definitionem, two branches; the imports and the exports, one has to check both of them in order to make and assessment. For that purpose, the latest relevant Eurostat News Release (ENR) can be found here.

In this ENR we observe that the growth of exports (non seasonally adjusted) was really sluggish as compared to the more vigorous rise of imports, for the 18-membered Euro Area over the first semester of 2014. This might be a result of the weakening Euro of the second quarter, following the deflation concerns. By checking the seasonally adjusted data we see that imports have shown some month-to-month growth signs lately (feel free to compare it with 2013). If we take under consideration the dwindling Euro-zone inflation compared to the more vivid evolution of prices in the rest of the globe, we can assert that the growth of imports is opposing to what price and exchange rate developments dictate, that is a halt or a contraction of imports. That is a sign of a weak but not (yet?) contracting domestic demand, lowering the risk of a severe recession-deflation.

Source: Eurostat, http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14082014-AP/EN/2-14082014-AP-EN.PDF
So, the increased trade surplus simply shows that in the Eurozone we are slowing down but not shrinking, while the rest of the world is certainly doing better. That is, actually, good news! However, the geopolitical risks lurking in Ukraine and in Russia - West trade relations can turn the Block upside down. 


P.S.: Austerity and "structural reforms" cannot be labeled as "successful" in enhancing trade surplus since this latest uptrend is most likely attributed to the depressed economy (recession is imminent, if you ask me, the third one in the last 6 years) and to the adverse price developments that are undermining the Euro. However, if the ongoing policy mix remains effective for a long time, then we will have moved to the long run and, hence, the "structural reforms" will have long run effects with the unbearable cost of exceptionally high long run unemployment.