Eurozone achieves strong trade surplus as inflation falls

October 16, 2013


The Eurozone logo/AFP
The Eurozone logo/AFP
BRUSSELS, Oct 16 – The eurozone boosted its trade surplus during the August holiday month, initial official data showed on Wednesday, and crisis-hit countries did particularly well.

Eurozone inflation meanwhile, a central factor for monetary policy by the European Central Bank, fell sharply in September to 1.1 percent from 1.3 percent in August.

A trade surplus is one of the main levers of growth in an economy.

The eurozone is heavily dependent on a huge trade surplus by Germany which more than compensates for a big structural deficit by the second biggest eurozone economy France.

For the eurozone countries in deep crisis, and for others such as Italy and France struggling to raise their competitive performance and restructure their economies, improving the trade balance is of critical importance.

The latest data showed that the eurozone achieved a surplus in August of 7.1 billion euros ($9.6 billion), sharply up from 4.6 billion euros 12 months earlier.

For July, slightly revised data from the EU statistics agency Eurostat showed a surplus of 18.0 billion euros.

On an adjusted basis, ironing out variations in the number of working days and other seasonal factors, exports rose by 1.0 percent and imports by 0.2 percent from the levels in July.

The wider European Union of 28 countries showed a deficit of 2.8 billion euros in contrast to a surplus of 10.3 billion euros in July.

At Berenberg Bank in London, senior economist Christan Schulz said “trade remained a key driver of the eurozone recovery this summer.”

He said that the adjusted surplus for August rose to 12.3 billion euros, up from 11.0 billion euros in July.

He added: “The eurozone managed to sell its goods abroad and imported less due to its collective belt-tightening and import substitution.

“As a result in the first eight months of 2013, exports rose by one percent, while imports fell by four percent year-on-year, leading to an improvement in the trade balance from 38.9 billion euros in January-August 2012 to 98.0 billion euros in January-August 2013.”

Eurozone exports had been helped by “the UK’s consumer-driven recovery and China’s rebalancing,” he said.

He also highlighted that “eurozone crisis countries continued to benefit most.”

Italy, Spain and Belgium had reported “the biggest positive trade swings”, and “relative to total exports, the biggest improvements came in Greece, ahead of Spain and Italy.”

The inflation data from Eurostat put inflation in August at 1.1 percent which is less than half the level of 2.6 percent in September of 2012.

The main factor was a fall in the price of fuel for transportation.

This means that inflation is well below the target level set by the ECB of just below 2.0 percent in the medium term.

The bank aims for this level because experience shows that if inflation rises above 2.0 percent people and businesses begin to take decisions on the assumption that prices will rise further, thus stoking what is called second-round inflation.

But inflation of under 1.0 percent raises dangers of deflation.

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