European Exports Decline 5.8%, Most in Seven Months
European exports declined the most in seven months in August as the region struggled to emerge from the deepest recession since World War II and the euro’s appreciation threatened to undermine the recovery.
Exports from the 16-nation euro region fell a seasonally adjusted 5.8 percent from July, when they rose 4.7 percent, the European Union’s statistics office in Luxembourg said today. That was the biggest decline since January. Imports fell 1.3 percent in August and the trade surplus shrank to 1 billion euros ($1.5 billion) from 6 billion euros in the previous month.
The euro has risen 15 percent against the dollar in the past seven months, eroding export returns for European companies just as the region is starting to recover from the global slump. Jean-Claude Juncker, who heads the group of euro-area finance ministers, said today that “there’s a risk” the euro’s gains could impede the recovery and that the issue will be discussed at a meeting on Oct. 19 in Luxembourg.
“Exports are likely to have to be the engine of growth again,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “But given the expected sluggish recovery in world demand and the headache of the rising euro, that engine won’t be firing on all cylinders.”
European Central Bank President Jean-Claude Trichet yesterday said it is “extremely important” that U.S. authorities pursue policies supporting a strong dollar and called excessive currency volatility “an enemy.”
‘There’s a Risk’
Juncker, while saying he is “not too worried about the euro’s current level,” added that “if the euro’s direction were to continue in the direction it did in the last few weeks, there’s a risk that there’ll be an exchange rate that could slow down economic recovery in Europe.”
The euro this week reached a 14-month peak against the dollar and Goldman Sachs Group Inc. yesterday projected that the U.S. currency will weaken to $1.55 versus the euro in the next three to six months before recovering to $1.35 a year from now. The euro was down 0.5 percent at $1.4878 at 5:30 p.m. in London today, still up more than 10 percent in the past 12 months.
Governments around the world have spent $2 trillion to fight the recession and the ECB has cut its key interest rate to a record low of 1 percent and other measures to stimulate bank lending and boost the economy. Trichet said on Oct. 9 that the recovery likely will be “rather uneven.” Consumer confidence in the U.S., the world’s biggest economy, fell more than economists forecast this month, data showed today.
Third Quarter
The economy may expand 0.2 percent in the third quarter and 0.1 percent in the fourth, after contracting in five straight quarters, the European Commission forecast last month. In the three months through June, euro-area gross domestic product fell 0.2 percent as Germany and France emerged from the recession.
“The disappointing euro-zone export performance in August reinforces the case for the ECB to retain an accommodative stance for many months to come,” said Howard Archer, chief European economist at IHS Global Insight in London. The drop in exports “is worrying for euro-zone recovery prospects” and companies will “be fervently hoping that the euro eases back.”
“At current levels, the situation is becoming very difficult for all industrial companies that have their costs in euros,” Airbus SAS Chief Operating Officer Fabrice Bregier said in Paris on Oct. 8. “We can only appeal to monetary authorities to ensure currency stability.” Airbus, the world’s largest maker of commercial aircraft, said the day before that orders dropped 80 percent in the nine months through September from the same period a year earlier.
Largest Market
Euro-area exports to the U.S., the region’s second-biggest trading partner, dropped 20 percent in the first seven months of 2009 from a year earlier, today’s report showed. Shipments to the U.K., the largest market for euro-area goods, declined 26 percent, while exports to China, the fastest-growing major economy, fell 4 percent. The detailed country data are published with a one-month lag.
There are signs of a global recovery and European exporters from luxury-goods maker Hermes International SCA to carmaker Bayerische Motoren Werke AG have reported increasing orders. Confidence in the world economy improved for a third month in October, a Bloomberg survey of users on six continents showed yesterday. U.S. service industries expanded last month for the first time in a year and China’s manufacturing grew at the fastest pace in 17 months.