6/9/2014: Euro Area Current Account and Growth Dynamics

Eurostat released Current Account statistics for the euro area for Q2 2014 and the numbers are not exactly pretty. Based on seasonally-adjusted data, Q2 2014 current account surplus was EUR54.5 billion, which is down on EUR55.6 billion in Q1 2014 and down on EUR61.8 billion in Q2 2013. Of the mani components:

• Trade in goods balance slipped from EUR46.9 billion to EUR40.3 billion in Q1-Q2 2014 and is lower than EUR45.5 billion surplus delivered in Q2 2013.
• Balance of trade in services improved significantly, rising to a surplus of EUR31.6 billion in Q2 2014 from EUR25.9 billion in Q1 2014 and compared to EUR27.1 billion in Q2 2014.
• There was a significant drop in the balance of income from abroad, year-on-year down EUR7.9 billion, somewhat moderated by the reduction in the current transfers deficit

Table below summarises:

It is worth noting that the above trade in good statistics are coming in at a balance of EUR87.2 billion for H1 2014, while the estimates just a half a month ago (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-18082014-AP/EN/6-18082014-AP-EN.PDF) came in with a balance of EUR79 billion balance on goods trade side for extra-EU trade. That is a massive swing that is hard to explain by ordinary revisions.

Overall, Q2 figures show some serious weakness on the trade side. Overall trade balance (goods and services) at the end of Q2 2014 stood at EUR71.9 billion, which is down on EUR72.8 billion in Q1 2014 and on EUR72.6 in Q2 2013. This means that y/y net exports made a negative contribution to the GDP (gross of factor payments), although excluding factor payments, the latest breakdown of Q2 GDP shows (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-05092014-AP/EN/2-05092014-AP-EN.PDF see Tables T1 and T2) that net exports contributed positively to y/y growth in GDP in Q2 2014. In other words, at least 0.1% of growth registered in Q2 2014 in the euro area economy seems to be attributable to factor payments swings (delays) which presents a potential problem forward for Q3 - Q4 2014 GDP growth. If lagged factor payments come due in Q3-Q4 2014, these will act to depress any potential uplift from rebuilding of inventories (much of the Q2 2014 drop to 0% is accounted for by depletion of inventories by the firms).