EMU Trade Deficit Is Cut Sharply in May

The deficit on trade in the European Monetary Union in May fell to €0.86 billion from €7.95 billion in April. The deficit decline was the product of trends that we can express in several different ways. • One way to look at it is to chronicle the trade balances by main product types. For example, the balance on manufacturing trade moved into a stronger surplus at €28.2 billion up from €23.3 billion in April. Also contributing to improvement is a smaller deficit in the balance on nonmanufacturing trade that fell to -€29.1 billion in May from -€31.3 billion in April. • Another way to look at the deficit contraction is to note that exports rose by 2.9% in May as imports fell by 0.1%. On a month-to-month basis, exports gained much more traction than imports, which backed off, helping to move the trade balance into a smaller deficit position.

Manufacturing trade Manufacturing trade in May produced an export gain of 2.9% against the rise in imports of 0.4%. Exports dominated the scene, driving the export surplus and manufacturing trade that we referred to above. This compares to April when exports of manufacturers fell by 4.8% and imports of manufacturers rose by 3.6% creating the exact opposite result.

Viewed sequentially, exports are weakening in manufacturing. Still, they rise by 1.7% over 12 months, fall at a 7.6% annual rate over 6 months and then reducing that pace of decline but still falling by 4% at an annual rate over three months. Manufacturing imports on a sequential basis fall by 2.8% over 12 months, fall at a 6.2% annual rate over six months but then rise at a 2% annual rate over three months. Except for the year-over-year changes, import trends and manufacturing are stronger than export trends.

Nonmanufacturing trade Nonmanufacturing exports in May rose by 2.9%, stronger than their 1.3% gain in April. In comparison, imports of nonmanufacturing goods fell by 1.4% in May helping to drive the overall trade picture toward surplus while in April nonmanufacturing exports rose by 1.3% as imports surged, rising by 7.6% month-to-month, sharply widening the deficit.

Sequentially nonmanufacturing exports are strengthening as weakness dissipates. Nonmanufacturing exports fall 10.4% over 12 months, fall at a 9% annual rate over six months and then fall at a 1.4% annual rate over three months. All those flows showed declines in value, but the pace of decline is easing. For imports, there is a more erratic pattern and one that leads to slightly less weakness over three months than 12 months. Still, the data show nonmanufacturing imports are falling at a rapid rate and that helps to contract the deficit on all the horizons. Over 12 months nonmanufacturing imports fall by 26.9%. Over 6 months they fall at an annualized rate of 38.9%; that result was cut nearly in half to a decline of 21.1% at an annual rate over 3 months. Yet, the pace of decline is still very steep- about 15-times-the weakness in nonmanufacturing exports on the same period. A lot of the improvement in trade is on the import side and coming through persistent weakness in nonmanufacturing imports.

Much of the progress in trade that we have seen globally has come on the back of lower commodity prices, explaining the weakness in nonmanufacturing flows. Oil and energy product prices have been weakening. Energy flows were greatly interrupted at the start of the Russia Ukraine war and since then a lot has been done to try to achieve some increases in energy supply and altogether these efforts along with slowing economic growth and what was a warmer than expected winter have helped to contain energy prices. Those prices continued to be soft although OPEC has been making noises that it is ready to take steps to try to firm up prices in the oil market.

Export-import trends in Germany, France, and the U.K. The table contains data for Germany, France, and the U.K. for exports and imports to take a country-specific look at what is going on with trends. In Germany, exports are increasing on all horizons but they steadily slowing from 12-months to 6-months to 3-months. Imports, on the other hand, rise by nearly 4% over 12 months then fall at a 20% annual rate over 6 months and fall at about a 13% annual rate over 3 months- not exactly sequential slowing, but a continued pattern of contraction, nonetheless. France’s sequential trade patterns are less clear for exports where exports rise by 9.5% over 12 months, decline at a 6.5% rate over 6 months and then rebound to grow by less than 1% at an annual rate over 3 months. But same horizons imports are getting progressively much weaker in France as imports fall by 2.4% over 12 months, decelerate sharply to fall at a nearly 30% rate over 6 months and then decline at an expedited 37% annual rate over 3 months. Again, with France the driving force for trade improvement comes from import weakness. The U.K., of course, is not a European Monetary Union or EU member; its exports show clear sequential deterioration along with export growth of 24% over 12 months, an export decline at a 14.6% annual rate over 6 months and then a horrific decline at a 55% annual rate over 3 months. For the U.K. except for the year-over-year result exports are much weaker than imports persistently; U.K. imports fall by 1.2% over 12 months; they fall at a 10% annual rate over 6-months and then at a 7% annual rate over 3 months.

Other export trends At the bottom of the table, we look at export trends in four additional EMU members: Finland, Portugal, Belgium, and Italy. Three of these four show export declines in May. Three of these four show export declines in April; three of the four show export declines over three months. All of them show export declines over six months and all of them show export declines over 12 months. In addition, three of four countries report double-digit export decline over 12-months; only Portugal escapes that fate and does so only technically with 9.9% decline over 12 months. All have double-digit declines in exports over 6 months and all have double-digit declines of 20% or more except Portugal (-15.7%). Three of four have double-digit export declines of 15% or more annualized over 3 months; the exception is Finland that posts the opposite- a surge in exports at a nearly 40% annual rate.

On balance, export trends in Europe are worrisome. The trade balances are improving mostly on imports that are weaker than exports – that is different from ‘export strength.’ The export data seem weaker than the factory and S&P PMI data that have been reported. Trade is often a good indicator of changes in growth trends since it is an excess-supply or an excess-demand phenomenon in many cases. For now, trade conditions in Europe are looking weak and troublesome.