Eurozone current account surplus widened in August - ING

Bert Colijn, Senior Economist at ING, suggests that the increased current account surplus is likely more of an indication of weak domestic demand growth than of a strong export position for the Eurozone.

Key Quotes

“The widening current account surplus is a welcome sign for Eurozone growth as the summer months showed concerning developments from a trade perspective. The first two months of post-Brexit trade have shown cautious improvements in nominal exports, while imports have declined. This means that the “Brexit-effect” remains subdued for now. This is not just a positive though, the widening gap is mostly because of weakening Eurozone domestic demand growth, which has lowered imports this summer.

As these are nominal data and prices are rather volatile, it could well be that the net export picture for GDP will look somewhat different. Import prices ticked down in August, indicating that the overall contribution of net exports to GDP could come in lower than the nominal data indicate.

While this August reading of the current account seems positive from a growth perspective, the trade environment for the Eurozone remains weak. A worst case scenario would be that the coming months show a race to the bottom between exports and imports to determine the net contribution to GDP. As domestic demand in the Eurozone is weakening under higher oil prices and slower unemployment declines, imports are likely to continue to suffer and exports are under pressure from a turbulent trade environment. All in all, this is in line with somewhat weaker GDP growth in the last months of 2016.”