What Is Not Seen

The second estimate of forth quarter GDP was unchanged for the euro area on +0.4%. A closer look at the numbers show a slightly stronger net export than in the first estimate, with an upward revision for exports of 0.6 % from 0.5% and a downward revision for imports of -0.3 from -0.4.

Even if fourth quarter export growth has slowed compared to the third quarter growth of 2.2%, euro zone exports have held up good, despite the strong euro. This is confirmed by german export numbers published today, that show exports have risen in February by €0.4 billion since January this year.

What is to expect? Surely, it takes time for a move in exchange rates to affect trade volumes, especially if business hedge against the surge in currency. As forward contracts eventually will reset, profit margins will contract in the short term. This will likely result in higher prices as business tries to maintain their margins, which in turn will have a negative effect on overall exports in the euro area. Goods that are sensitive to price changes will naturally experience a significant slow in exports as foreign demand will lessen. For countries, like Germany and Finland, exports may be sticky. With a large amount of non-euro exports consisting of capital goods, both countries could benefit from strong Asian demand.

With euro zone inflation at an all time high of 3.5%(p), many companies have already experienced higher costs, as inflation has affected transportations and overall energy prices, resulting in an increase of input prices. According to the CPI euro annual report for February, transports had increased 5,4 % and energy 10,4% since last year. For the exporting sector of many countries this will surely have a double negative effect, also resulting in slower GDP growth.