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Eurozone Crisis Has Eliminated The Periphery Trade Deficit

By Sober LookForexSep 24, 2012 02:10AM ET
www.investing.com/analysis/analysis/eurozone-crisis-has-eliminated-the-periphery-trade-deficit--137397
Eurozone Crisis Has Eliminated The Periphery Trade Deficit
By Sober Look   |  Sep 24, 2012 02:10AM ET
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The eurozone recession is having a somewhat unexpected effect on the periphery nations' current accounts. As was the case with Portugal (see this discussion), the eurozone periphery has eliminated its trade deficit.

Eurozone periphery trade balance
Eurozone periphery trade balance

Domestic demand in these nations has collapsed, dramatically shrinking imports and improving the external balance. These nations just can't afford many of the goods they used to import. And as the periphery eliminated its trade deficit, the eurozone as a whole went into a trade surplus.
Eurozone  trade balance
Eurozone trade balance

This improvement to the area's current account balance was at the expense of a massive GDP reduction, negatively impacting global economic growth.

CS: We think that sharp, crisis-induced, rise in the euro area’s current account balance – worth around two percentage points of euro area GDP in the past nine months – has generated a significant negative shock to the global economy.

This is one of the reasons the UK for example is struggling with a rising trade deficit (see this discussion) and a double-dip recession. Spain, Italy, Portugal, Ireland, etc. are no longer in a position to be buying British and other nations' products and services as they did in the past.

Eurozone Crisis Has Eliminated The Periphery Trade Deficit
 

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Eurozone Crisis Has Eliminated The Periphery Trade Deficit

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Gaston Besanson
Gaston Besanson Sep 24, 2012 8:59AM ET
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Hello, Euro: Optimal Currency Area, theory and current situation is the fifth video of the Fun & Finance´s Second Season. https://vimeo.com/49948630 In this episode, along with Marco Biagetti from Rome, we talk about the Euro Zone; topics such as what is an optimum currency area and what are the ECB´s current actions. Together with this video, we made another with a bonus question about the current situation in Italy and Spain. https://vimeo.com/49952854
 
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