Euro area current account surplus likely to improve

The Euro area export growth slowed down to 0.8% q/q growth in Q1. The economy's exports to China declined by -4% q/q, and to Russia fallen by more than 30% so far in 2015.

The effects of a weaker euro exchange rate are likely to have a positive impact on export volume growth and profit margins, says Barclays. However, external risks remain the Achilles heel of Germany's export-dependent economy. Further intensification of the tensions with Russia over Ukraine cannot be ruled out. The same is true for the Greek crisis, which, despite the 13 July agreement to launch negotiations on a third bailout, could reignite financial tensions andincrease uncertainty about the long-term future of the currency union (EMU).

"Notwithstanding these risks to Germany's export performance, the current account surplus is expected to rise to more than 8% of GDP this year given that the positive terms of trade effect from lower oil prices has not yet been fully absorbed. In the medium term, the current account surplus should recede gradually as Germany is moving past its demographic inflection point and older generations are starting to dissave", says Barclays