Europe Exports Drop 5.8% as Region Struggles to Exit Recession

By Simone Meier

Oct. 16 (Bloomberg) -- European exports declined the most in seven months in August as the region struggled to emerge from the deepest recession since World War II.

Exports from the 16-nation euro region fell a seasonally adjusted 5.8 percent from July, when they increased 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.

Governments around the world have spent $2 trillion to fight the recession and European exporters from luxury-goods maker Hermes International SCA to car manufacturer Bayerische Motoren Werke AG have reported increasing orders. The euro’s 13 percent gain against the dollar in the past six months may be hindering the recovery by making European goods less competitive abroad.

“Export activity will continue to gather steam over the coming months,” Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt, said before the data were published. “But if the dynamic weakens and the euro remains strong, the economy may take a damper.”

Europe’s 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, the region’s gross domestic product fell 0.2 percent as Germany and France emerged from the recession.

Largest Market

Exports to the U.K., the largest market for euro-area goods, fell 26 percent in the first seven months of 2009 from a year earlier, while shipments to China, the fastest-growing major economy, declined 4 percent, today’s report showed. Exports to the U.S., the world’s biggest economy, dropped 20 percent. The detailed country data are published with a one- month lag.

The European Central Bank has cut its key interest rate to a record low of 1 percent and started buying covered bonds to stimulate bank lending and boost investments and consumption. ECB President Jean-Claude Trichet said on Oct. 9 that it is “not the time to exit yet” with the economy expected to show a “rather uneven” recovery.

The euro was down 0.3 percent against the dollar today as the U.S. currency rose from a 14-month low against its European counterpart. The euro traded at $1.4893 at 9:52 a.m. in London, still up more than 10 percent in the past 12 months.

Mobile Phones

Nokia Oyj, the world’s biggest maker of mobile phones, yesterday posted its first net loss since the company began reporting quarterly in 1996, hurt by costs related to a joint venture with Siemens AG and weaker demand. Dublin-based C&C Group Plc, the maker of Magners cider, on Oct. 8 reported a drop in first-half profit and said trading conditions have become “more challenging.”

“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. The risk of a double dip in the euro-area economy is still lurking in the shadows.”

There are signs of a global recovery. Confidence in the world economy rose for a third month in October, a Bloomberg survey of users on six continents showed yesterday. In the U.S., the world’s largest economy, service industries expanded last month for the first time in a year. China’s manufacturing grew at the fastest pace in 17 months in September.

‘Slightly Positive’

Hermes Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.” Munich-based BMW posted its first monthly sales increase this year in September.

“In the last three or four months, things have been significantly better than the first part of the year,” Francesco Trapani, chief executive officer of Rome-based Bulgari SpA, the world’s third-largest jeweler, said on Oct. 9. He said demand for watches has shown signs of improvement over the past months.

To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net.