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Euro Zone External Trade Balance Swings to Surplus

Reuters
Tuesday, 22 May 2007 | 7:16 AM ET

The euro zone's external trade balance swung to a surplus in March from a deficit in February, showing exports were likely to have contributed to economic growth in the first quarter despite the strength of the euro.

The European Union statistics office said that seasonally unadjusted, the trade surplus of the 13 countries using the euro rose to 7.4 billion euros ($10 billion) from 0.6 billion a year earlier and a revised 1.3 billion euro deficit in February.

The data, released on Tuesday, backs recent comments from EU Economic and Monetary Affairs Commissioner Joaquin Almunia that the strength of the euro against the dollar and the yen has had little impact on the external trade of the currency bloc.

"This is a positive factor for growth in the first quarter," said Edward Teather, economist at UBS.

"The net trade contribution to growth in the first-quarter, given the positive business confidence we currently see in the region, is probably due to healthy exports. The strong euro is not harming exports," he said.

Euro All-Time Highs

The euro hit all-time highs against the dollar at the end of last month and set new peaks against the Japanese yen last week, but on a trade-weighted basis between the start of February and the end of March, the euro firmed only 1.5%.

The European Union's statistics office said that according to seasonally unadjusted data, exports grew by 7% year-on-year in March after a 10% increase in February. Imports in the two months grew by 1 and 7% respectively.

Seasonally adjusted, the trade balance improved to a surplus of 5.1 billion euros in March from 0.5 billion in February with exports rising 1.2% month-on-month and imports falling 2.6% from February.

"Consequently, it seems probable that net trade contributed to overall euro zone growth ... in the first quarter of 2007, although less so than in the fourth quarter of 2006 when it added 0.7 percentage point to growth," said Howard Archer, economist at Global Insight.

More detailed data for March was not yet available, but numbers for the first two months of the year showed the deficit in trade in energy widened to almost 42 billion euros in the January-February period from 36 billion a year earlier.

The trade balance for manufactured goods, meanwhile, remained at a steady surplus of 30 billion euros.

The strength of exports, pointing to healthy economic growth, would serve as another argument for the European Central Bank to raise interest rates in June, economists said.

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