Euro zone halves trade deficit

A surge in German exports of cars and machinery helped the euro zone halve its trade deficit with the rest of the world in January…

A surge in German exports of cars and machinery helped the euro zone halve its trade deficit with the rest of the world in January, a sign that international demand offers the currency area its best chance a revival from its economic slump.

Exports from the 17 countries sharing the euro jumped 11 per cent in January from the same month a year ago to bring the region's trade deficit to €7.6 billion, from a deficit of €16.1 billion in January 2011, the European Union's statistics office Eurostat said today.

But imports only rose 4 per cent in January, highlighting the austere times for European households hurt by government budget cuts, rising unemployment and the impact of the sovereign debt crisis on businesses and bank credit.

Adjusted for seasonal swings, the euro zone posted a trade surplus of €5.9 billion in January, the fifth consecutive month in positive territory.

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Showing the strength of the German economy that accounts for almost 40 per cent of the euro zone's exports, Germany had a €157 billion trade surplus over the full year 2011. No other euro zone nation matched anywhere near that number, with the Netherlands coming closest, with a €45 billion surplus.

The euro zone's economy is expected to shrink around 0.3 per cent this year, its second recession in just three years, but the slump masks wide divergences in the region's fortunes, with Germany likely to escape the slump despite a slowdown last year.

"Our expectation is that the economy in Germany will regain its footing," said Ralph Solveen, an economist at Commerzbank.

Greece and Portugal, already in recession and only saved from insolvency by emergency euro zone funding, had large trade deficits last year and Spain's deficit was one of the largest in the region, at €47.2 billion.

Overall, German resilience narrowed the euro zone's trade gap with China to a €101.2 billion deficit last year, compared to a €114.7 billion deficit in 2010. The euro zone's trade balance with the United States was almost unchanged at a €58.3 billion surplus.

On an annual, non-seasonally adjusted basis, energy accounted for the majority of the euro zone's imports last year and the energy trade deficit widened to €327.8 billion.

Much of that oil and gas came from Russia, where the trade balance grew in Moscow's favour in 2011, widening the euro zone's deficit to €57.7 billion.

Reuters