Pantheon Macroeconomics - Why is the EZ current account surplus rising and net exports falling at the same time? 

News | Question of the Week, WC 2nd July
Why is the EZ current account surplus rising and net exports falling at the same time? 

Sorry, but our website is best viewed on a device with a screen width greater than 320px. You can contact us at: info@pantheonmacro.com.

Question of the Week, WC 2nd July

Why is the EZ current account surplus rising and net exports falling at the same time? 

We have received a lot of questions about our forecast that the EZ’s current account surplus will increase to just under 4% of GDP this year, but that net exports will be a drag on growth over 2018 as a whole. This question is easy to answer empirically. The chart below shows that trying to explain the variations in real net exports with the current account data is a futile exercise. A regression with data stretched back to 1999 produces an r-squared of only 0.05. From a statistical point of view, this is the equivalent of a random relationship. 

The simple explanation is for this divergence that the current account is a broader measure than net trade because it includes income flows, but the real difference is due to the impact of price changes. Volatility in oil prices is a major driver of this relationship. In an energy-importing economy, a jump in oil prices will reduce the nominal trade surplus, but it depresses real imports via the rising deflator, in turn, lifting net exports. This effect has been the driver of quarterly net trade variations on several occasions in this expansion, due to the wild swings in the oil price. In the end, mean-reversion also plays a role for net trade. Net exports boosted GDP growth by a punchy 1.2 percentage points in 2017, but we struggle to see how this performance can be sustained this year. Indeed, the Q1 data already suggest that it won’t.

Claus Vistesen, Chief Eurozone Economist, Pantheon Macroeconomics

To request a trial of our research, please click here

Posted: 5th Jul 2018

Consistently Right

Access Key Enabled Navigation

Keywords for: News | Question of the Week, WC 2nd July

pantheon macroeconomics, pantheon, macroeconomic, macroeconomics, independent advice, independent analysis, independent macroeconomic researcj, independent, analysis, research, economic intelligence, economy, economic, economics, economists, Dr. Ian Shepherdson, Ian Shepherdson, financial market, financial, market, finance, macro, macro research, independent macro research