EU officials and economists believe that Europe can export its way to health. It cannot.
As a whole, the 17 nation block runs a net trade surplus.
With China slowing, with emerging markets looking anemic at best, and with a weak Japanese Yen making Japanese exports such as cars relatively attractive, precisely where are those exports supposed to go? Mars?
Yesterday came the unsurprising news (to Mish readers) that Euro-Zone Exports Slump in May.
The European Union’s statistics agency Eurostat said Tuesday that adjusted for seasonal factors, exports from the euro zone to the rest of the world fell 2.3% from April, while imports were down 2.2%.
It was the second straight month in which exports fell sharply, and the largest month-to-month fall since June 2011.
Eurostat said that before seasonal adjustments, the euro zone had a trade surplus of €15.2 billion in May, up from €6.6 billion in May 2012 and €14.1 billion in April. The widening of the trade balance over the year was entirely because of a 6% drop in imports, a sign of weak domestic demand.
The drop in exports to countries outside the EU was particularly sharp in Germany, falling by 9% from April. By contrast, Italian exports to non-EU countries rose by 3.6% while Spanish exports rose by 0.8%.
EU Trade Year-Over-Year
Compared to a year ago exports are up slightly, but I do not expect that situation to last. The slowdown in exports from Germany will put the kibosh on that silly idea.
Recovery? What Recovery?
Curiously “Economists at Barclays Bank said they believe the euro-zone economy grew very slightly in the second quarter and predicted a gradual recovery for the rest of the year and next. But they stressed that their forecast depends on a moderately supportive market for the currency area’s exports. Should exports stall or fall, the recovery could be delayed and weaker than expected.”
Expect What the Economists Don’t
For starters there is no recovery. Secondly, there is every reason for eurozone exports to slump; there is no reason to believe hiring will pick up, and no reason for imports or internal demand to pick up in the absence of hiring.
So … Expect the recovery to be “weaker than expected”. Indeed, expect no recovery at all. Rather, expect Germany to contribute in a major way to the pending “unexpected” non-recovery, unless by some miracle European exports to Mars suddenly take off.
Mike “Mish” Shedlock