Eurozone current account surplus narrows in July on lower trade surplus

Data released earlier on Monday showed that the euro zone current account surplus narrowed in July primarily on a lower trade surplus. Net portfolio investments surged in July the European Central Bank said on Monday.

The 19-member currency bloc's adjusted current account surplus shrank to 21.0 billion euros (17.94 billion pounds) in July from 29.5 billion euros a month earlier, below the 27.2 billion euros expected. For the latest 12 months, the current account surplus widened to 3.2 percent of the bloc's GDP from 3.0 percent a year earlier.

Fall of goods import likely cushioned the damage for the current account. Goods import declined 1.4 percent since June and ended up 3.9 percent lower than in July last year. The value of goods export was 1.1 percent lower in July than in June 2016 and 3.5 percent lower than twelve months ago corrected for differences in working days. Export prices fell an estimated 0.7 percent m/m in July which implies that export volumes (goods) came down 0.4 percent. The performance of services is deteriorating as well. The surplus in traded services came down €2bn compared with June and is now €4.9bn.

The unadjusted direct and portfolio investments jumped to 72.1 billion euros from 6.0 billion in June. Net portfolio investments which accounted for the bulk of the increase surged to 52.8 billion euros from 11.6 billion euros. While the direct investments also contributed significantly, rising to a net inflow of 19.3 billion euros from an outflow of 5.6 billion euros in June.

"Export performance will likely remain weak in 3Q and 4Q given the slowdown of economic growth in most export partners. Eurozone import growth could deteriorate as well as sentiment has fallen and unemployment has stagnated in recent months, but not enough to stop the contribution of the external sector to the economy from falling.” said Raoul Leering, Head of International Trade Research at ING in a report.