Europe's Energy Trade Deficit Soars as Oil Costs Jump

By Fergal O'Brien

July 18 (Bloomberg) -- Europe's energy trade deficit soared 42 percent in the four months through April as crude-oil prices jumped to a record.

The euro region's deficit on energy products widened to 99.7 billion euros ($158 billion) from 70.4 billion euros a year earlier, the European Union statistics office in Luxembourg said today. Energy-product imports increased 41 percent.

Surging prices for oil and other commodities are boosting the amount Europe spends on imports and widening the trade deficit of the 15 nations that use the euro. At the same time, cooling global growth is undermining the region's exports, threatening to slow the euro-area economy.

``I'm quite sure we haven't seen the last of the impact of imported raw material prices on the data,'' said Dominique Barbet, an economist at BNP Paribas SA in Paris. ``Although there has be en some improvement in oil in the last few days, we're still looking at another three or four months of an adverse impact on the trade figures.''

The cost of a barrel of oil has jumped almost 75 percent in the past year and reached a record $147.27 on July 11.

Gaining Weight

While long-term contracts mean current crude-oil prices may not directly translate into what companies are paying, the costs are rising. Over the last 12 months, energy products' share of total euro-area imports has risen to around 15 percent from 10 percent due to the increase in price, according to Barbet.

Producer price inflation in Germany, Europe's largest economy, hit a 26-year high of 6.7 percent in June on energy, the country's Federal Statistics Office in Wiesbaden said today.

Today's euro area report also showed the region recorded a seasonally adjusted trade deficit of 1.5 billion euros in May, compared with a 1.4 billion-euro surplus in April. The statistics office publishes data for individual products and countries with a one-month lag.

Economists forecast an 800 million-euro surplus for May, compared with an initially reported April surplus of 2.2 billion euros, according to the median of five estimates in a Bloomberg survey.

Growth to Trough

Overall exports fell 3.4 percent in May from the previous month, the data showed. The outlook for sales abroad is worsening as global economic growth cools and the euro's advance against the dollar makes the region's goods less competitive. Euro-area exports to the U.S., the world's largest economy, fell 3 percent in the four months through April from a year earlier.

The euro has gained 15 percent against the dollar in the last 12 months and was at $1.5869 today.

European Central Bank President Jean-Claude Trichet said in an interview published today that there will be a ``trough in the profile of growth in the euro area in the second and third quarters.'' He expects a ``a progressive return to ongoing moderate growth'' after that.

Exports from Germany dropped the most in almost four years in May, according to national data published July 9. French shipments abroad also dropped in May.

``The double whammy of a strong euro and the sharp slowdown in the U.K. and the U.S., two of the region's key export markets, is making life increasingly difficult,'' said Martin van Vliet, an economist at ING Group in Amsterdam. ``And with high oil prices continuing to boost the oil import bill, the trade balance is likely to remain in deficit over the coming months.''

The detailed data on trading partners also showed that exports to the U.K. rose 3 percent in the January-April period, while those to China increased 19 percent and shipments to Russia rose 24 percent. The deficit with China, which last year overtook the U.K. to become the euro area's biggest supplier, fell 3.7 percent.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.