Euro zone’s current surplus is increasing but curbs can be seen on the horizon

The foreign sector was once again the main support for the euro area's economy during the second quarter of 2012.

Its contribution to quarter-on-quarter growth in GDP, namely 0.2 percentage points, partly offset the weak domestic demand. More dynamic exports which, up by 1.3% quarter-on-quarter, exceeded the figure posted by imports by 0.4 percentage points, lie behind this repeated positive contribution by the foreign sector, for the ninth consecutive time.

In nominal terms, the foreign sector's good performance led to a further improvement in the current balance for the second quarter of the year. July's figures show that this trend is continuing.

The current surplus multiplied by 4.7 with regard to the same month a year ago. As a consequence, the cumulative surplus for the last twelve months reached almost 60 billion euros, a figure very close to the peak reached in 2004. As can be seen in the table above, this improvement in the current balance also occurred in the main euro area countries.

However, there are two factors that might weaken the recent trend in the current balance and even reverse it. These are: the trend in oil prices and the euro exchange rate.

With regard to the first, the price of Brent in euros increased by 29.2% between June and August 2012. As a consequence, the more expensive energy imports for the euro area during the summer months very probably halted the current surplus's rate of growth. Rising oil prices will have more effect on those countries with a greater energy dependence on fossil fuels.

Among these, of note are Italy, Ireland and Spain, whose energy consumption from gas or oil was around 70% in 2010. But the euro's appreciation against the dollar during August and especially September could ease this pressure slightly.

Nevertheless, the recent appreciation of the single currency will also have an effect on European exports as it reduces the competitiveness of its products and, therefore, their demand. According to a study by the European Central Bank, a 10% increase in the real effective exchange rate leads to a contraction in exports of 1.2%.

Although we do not have the third quarter figures for the real exchange rate, we expect it to have picked up during this period. In fact, in nominal terms we can see that the euro appreciated, between the end of July and the end of September, by 3.2% compared with a basket of 20 foreign currencies.

Undoubtedly, the sharp appreciation against the US dollar and the Japanese yen contributed significantly to the euro's revaluation.

As a consequence, the good performance by the foreign sector shown during the second quarter of 2012 and start of the third could diminish during the last part of the year.