Eurozone: Weak exports add to growth worries - ING

Raoul Leering, Head of International Trade Research at ING, suggests that the contribution from trade to economic growth is slowing down in the Eurozone as after weak industrial production data last week, the Eurozone takes another beating at the start of this week.

Key Quotes 

“The current account surplus declined from €29.5 billion in June to €21 billion in July, and as growth was mainly driven by strong net exports in 2Q, this is concerning from a growth perspective.

The value of goods export was 1.1% lower in July than in June 2016 and 3,5% lower than twelve months ago corrected for differences in working days. We estimate that 2 percentage points of the drop in export value since July 2015 is due to declining export prices. From June to July export prices decreased an estimated 0.7% which implies that export volumes (goods) came down 0.4%. The performance of services is deteriorating as well. The surplus in traded services came down €2bn compared with June and is now €4.9bn.

The damage for the current account surplus is contained by the fall of goods import which declined 1.4% since June and ended up 3.9% lower than in July last year. Still, this fall in imports points at weakening private sector spending in the Eurozone, especially at business investments since imports are strongly correlated to corporate investments.

Do not count on exports as a forceful engine for the Eurozone economy during the rest of the year. Export performance will likely remain weak in 3Q and 4Q given the slowdown of economic growth in most export partners. Eurozone import growth could deteriorate as well as sentiment has fallen and unemployment has stagnated in recent months, but not enough to stop the contribution of the external sector to the economy from falling.”