The current deficit of the European Union continues to improve


In the second quarter of 2012, the euro area's current balance improved by 0.4 percentage points, reaching a surplus of 0.5% of its gross domestic product (GDP). This increase is largely due to the good performance of the trade balance, boosted both by the good rate of exports and the slowdown in imports. With regard to the latter, we expect weak domestic demand in the euro area to maintain this downward trend recorded over the last few months, even reaching a negative rate.

In fact, imports of goods grew by 0.9% year-on-year during the second quarter this year. This figure is 3.0 percentage points below the increase of the first quarter and is close to 13 points lower than the growth recorded a year ago. For its part, the growth in exports was 8.0% year-on-year, a level similar to the one recorded during the first quarter of 2012.

Undoubtedly, the euro's depreciation against the main international currencies is helping to maintain this dynamism.

A more detailed analysis shows that this trend has remained in the main countries of the euro area, with further improvements in their current balance. However, there are very significant differences between the members of the Monetary Union.

By way of example, the Netherlands and Germany reported notable current surpluses during this period, namely 9.3% and 6.0% of their GDP respectively. On the other hand, Greece and Portugal maintained sizeable external imbalances, namely 8.9% of GDP for Greece and 3.8% of its GDP in the case of Portugal.

Although this divergence is still high, we can see that it has narrowed gradually over the last four years.

In this respect, of note is the significant correction in the external imbalance recorded in the peripheral countries of the euro area; Spain, Ireland Greece and Portugal. As can be seen in the graph below, since December 2008 the improvement in the current balance of these four countries exceeds 6 percentage points. This is the opposite in Finland and Austria, although their external balances are still at a sustainable level.

Looking to the future, the trend in the current balance of the different countries will largely depend on the geographical distribution of their exports. The lethargy of the euro area's domestic demand will have more of an effect on those countries with a higher concentration of their exports aimed at the EU market. In fact, in aggregate terms, exports to outside the euro area have grown more than trade between EU countries.

Specifically, cumulative exports between April 2011 and March 2012 to countries outside the euro area grew by 9.0% compared with the same period a year ago, while exports rose by 5.6% year-on-year within the European market.


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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.