Europe's Trade Deficit Widens to Biggest Since 2006

By Fergal O'Brien

Aug. 18 (Bloomberg) -- Europe's trade deficit widened to the biggest in almost two years in June as a cooling global economy and the euro's gains against the dollar damped exports.

The 15-nation euro region had a seasonally adjusted deficit of 3 billion euros ($4.4 billion), compared with a 1 billion- euro trade gap in May, as imports rose twice as fast as exports, the European Union's statistics office in Luxembourg said today. The June deficit was the largest since August 2006.

European sales to the U.S., the second-biggest buyer of the region's goods, have fallen this year as economic expansion there eased. While demand in China and Russia has helped support exports, rising oil and commodity prices have pushed up the cost of imports and eroded Europe's trade balance.

``The euro zone's export performance is likely to deteriorate over the near term,'' said Martin van Vliet, an economist at ING Group in Amsterdam. ``The adverse impact of past euro appreciation has not been fully felt and the U.S.-led slowdown in global demand appears to be deepening.''

Exports to the U.S. fell 4 percent in the five months through May from a year earlier, according to detailed data the statistics office publishes with a one-month lag. Sales to the U.K., the euro region's largest market, increased 2 percent.

Meanwhile, the 56 percent increase is oil prices in the past 12 months pushed up the cost of imported energy. The euro area's energy deficit soared 40 percent in the January-May period, as imports of oil and other fuels surged 39 percent to 155 billion euros. Crude oil reached a record above $147 a barrel last month.

All-Time High

The higher cost of crude added 1 billion euros to French imports in June and drove that nation's trade gap to a record, the Trade Ministry in Paris said last week. Imports jumped 2.8 percent to an all-time high, outpacing the 0.6 percent gain in exports, which were hampered by the euro's advance.

``Demand from the U.S. is very weak and there's a moderation in world activity, which is having an impact on the euro zone,'' said Dominic Bryant, an economist at BNP Paribas in London. ``Elsewhere, China's imports are accelerating and while some emerging markets may be moderating, it's not a sharp slowdown.''

Exports to China jumped 15 percent and shipments to Russia increased 22 percent over the January-May period, the statistics office said. Trade figures last week from China showed its imports increased 34 percent in July from a year earlier.

Taking Advantage

Germany is taking advantage of that demand. Europe's largest economy had a record trade surplus in June as exports jumped more than economists forecast. Munich-based Siemens AG, Europe's largest engineering company, last month reported third- quarter earnings that beat analyst estimates on increased orders from Russia and China.

Hochtief AG, Germany's largest builder, on Aug. 14 raised its full-year forecasts on rising demand for construction and mining work in Australia and Asia. Audi AG, Volkswagen AG's luxury-car brand, said its worldwide deliveries rose 2.5 percent in July, led by growth in China and Russia.

Exporters may get some ``relief'' from the euro's decline from an all-time high against the dollar, ING's van Vliet said. Since reaching a record $1.6038 on July 15, the currency has dropped around 8 percent to $1.4715 today.

Still, an index of European manufacturing activity showed that export orders fell for a fifth month in July.

Europe's trade deficit with China, which last year overtook the U.K. to become the euro area's biggest supplier, narrowed by 2 percent to 42 billion euros in the five months through May. The trade gap with Russia soared 25 percent to 17.4 billion euros, according to today's report.

Economists had expected the euro region to show a trade surplus of 500 million euros in June, according to the median of seven estimates in a Bloomberg News survey.

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