Eurozone trade picture remains weak despite surplus widening in September

The seasonally-adjusted Eurozone trade surplus widened in September from €12.3bn (£10.3bn) to €14.3bn (£11.99bn), extending a near two-year long surplus. However, Jonathan Loynes of Capital Economics says that "weak global demand and the strong euro are holding back exports," and IHS Global Insight's Howard Archer says that net trade may have dragged down third quarter GDP for the area.

Despite the improved performance in September, Capital Economics agree that net trade most likely had a negative effect on GDP, contributing to the rate of growth slowing to just 0.1 per cent quarter-on-quarter, from 0.3 per cent in the second quarter.

Eurozone imports fell modestly for a second month running in September, which points to softer domestic demand, says Archer. Seasonally-adjusted data show that Eurozone exports of traded goods fell by 0.4 per cent quarter-on-quarter while imports edged up by 0.3 per cent quarter-on-quarter.

The Eurozone’s surplus in traded goods improved to a five-month high of €4.3bn in September, from €12.3bn in August and €10.8bn in July. Eurozone exports of traded goods rose by one per cent month-on-month in September, having crept up by 0.4 per cent in August. Eurozone imports dropped by 0.3 per cent month-on-month in September, after a fall of 0.6 per cent in August.

But Archer highlights the difference between countries: "for example, GDP data already released show that net trade was negative for Germany and (especially) France in the third quarter as their exports fell, but positive net trade was key to Spain finally crawling out of recession with GDP growth of 0.1 per cent quarter-on-quarter." The Eurozone could, he continues, "really do with some help from improving global growth over the coming months that lifts Eurozone exports and supports business confidence", following the third-quarter slowdown in GDP.

Loynes says that "more timely data", such as the PMI orders index, "suggest that exporters made some progress at the beginning of the fourth quarter". The failure of the index to imitate the improvement seen in other survey data this year points to the fact that exporters "might be feeling the effects of the strong exchange rate".
Archer says: "Eurozone exporters would undoubtedly also like to see the euro retreat further from the 23-month high of $1.38 that it hit in October: it is currently still relatively elevated at $1.35."

(Capital Economics)

Capital Economics doubts whether the latest figures signify the start of a "strong pick-up" in export growth. Loynes adds: "With weak domestic demand continuing to hold back imports, we wouldn’t be surprised if the euro zone trade surplus continued to widen over the coming months."