Euro Zone's Current Account Deficit Widens Despite of Improvement in Trade Balance

The data released today in the euro zone showed a widened deficit in the current account, in spite of the better-than-expected trade balance released yesterday; showing a widened surplus in September.  

In August, the current account seasonally adjusted showed a deficit of 1.3 billion euros from the revised 3.7 billion euros; while the non-seasonally adjusted reading turned into a deficit of 5.0 billion euros from the revised 9.3 billion euros.

Today, the euro zone current account, seasonally adjusted for September, revealed a widened trade deficit to 5.4 billion euros from the revised prior surplus of 0.6 billion euros from -1.3 billion euros; while the non-seasonally adjusted also showed that the deficit widened to 5.0 billion from the revised previous deficit of 3.5 from 5.0 billion euros.

The improvement was estimated after the surplus which had hit the trade balance, the largest component of the current account. The trade deficit for September turned to 3.7 billion euros surplus from the revised -2.3 billion euros, while trade balance seasonally adjusted showed a widened surplus to 6.8 billion euros from the revised 2.2 billion euros, according to the data released yesterday. However, the deficit widened today.

The trade data reflects the improvement that occurred in the third quarter; where the GDP showed a growth of 0.4% from 0.2% contraction in the second quarter and 2.5% in the first quarter. Net Trade contributed positively to the positive growth figures.

The 16-nation economy emerged from recession after the wise monetary interventions by the ECB, which cut the benchmark interest rate to 1% and announced 60 billion euros plan to purchase bonds to boost liquidity and spending. These policies, in addition to other fiscal policies, managed to jolt the economy out of recession. 

European exports surged to the highest level in more than 18 months in September as global demand recovered, giving an impetus to exports which edged up 5.5% from a month earlier when they slumped 4.1%, according to the European Union’s statistics office.

Sales overseas are considered the catalyst for growth in many European economies, especially Germany, which is regarded as the world's biggest exporter.

Exports inclined, despite the dollar's fall against the euro, which is reducing the appeal of European commodities by making it less competitive. The dollar has lost near 20% versus the dollar in the past seven months and it dropped to the lowest level in 15 months against the European single currency in November.

ECB in the bulletin released in November, raised their growth forecasts for the euro zone to a 3.9% drop in 2009, instead of 4.5% expected previously. In 2010, the bank expects growth to reach 1% from 0.3% and in 2011; where it will record 1.6% instead of 1.5%.