Eurozone: Net trade to boost growth again in 2018 – Capital Economics

Analysis General

Published: 2/15/2018 6:18:00 AM

While the euro-zone’s nominal goods trade surplus was little changed in Q4, overall net trade seems to have boosted GDP growth, according to Stephen Brown, European Economist at Capital Economics.

Key Quotes

“We expect trade to contribute positively to growth again this year.”

“The rise in the euro-zone’s seasonally-adjusted nominal goods trade surplus from €22.0bn to €23.8bn in December left it a touch above our forecast of €23.5bn. The breakdown showed that a 1.7% rise in export values outpaced a 0.9% rise in import values. In annual terms, exports were up by 7.8 % and imports by 8.0%. Germany’s trade surplus declined from €22.3bn to €21.4bn while France’s deficit narrowed from €5.6bn to €3.5bn. Over 2017 as a whole, the euro-zone goods trade surplus narrowed from €265bn to €238bn.”

“Over Q4 as a whole, the euro-zone’s goods trade balance increased by €1.0bn, or just 0.01% of eurozone GDP. But the monthly goods trade values data are far from a perfect guide to the goods and services trade volumes data used to construct GDP. And other evidence from individual countries’ national accounts suggests that net trade made a sizable contribution to the 0.6% rise in euro-zone GDP in Q4. And we estimate that net trade accounted for 0.6% of the 2.5% rise in GDP in 2017 as a whole.”

“The current phase in which net trade is contributing positively to growth looks set to continue this year. Indeed, the euro-zone’s manufacturing export orders PMI is much higher than the global index. The spread between these two indices, a rough proxy for the difference between euro-zone export and import orders, is consistent with net exports adding about 1%-pts to annual GDP growth.”

“We expect net trade to make a similar contribution to growth this year as in 2017, but this will be sustained further ahead. Indeed, the euro’s recent rise may explain why the bloc’s export orders PMI slumped relative to the global one in January. While we see the euro remaining around $1.25 this year, the region’s large current account surplus is one reason why we think it will reach $1.30 in 2019. And with global growth moderating, we see net trade making little contribution to euro-zone GDP in 2019.”

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