Europe’s Exports to U.S. Drop 4%, the Most in 5 Years

(Bloomberg, March 23) European exports to the U.S. declined the most in five years in 2008 as the global financial crisis curtailed demand in the region’s main trading partners. Shipments to the U.S., the euro region’s second-biggest trading partner after the U.K., dropped 4 percent last year, the European Union’s statistics office in Luxembourg said today. Exports to the U.K. also fell 4 percent. Overall euro-area exports rose 4 percent in 2008, the smallest gain in five years.

European manufacturers are cutting output and jobs as the global slump undermines exports and pushes Europe deeper into its worst recession since World War II. Volkswagen AG, the region’s biggest automaker, is cutting 16,500 temporary jobs and ThyssenKrupp AG, Germany’s largest steelmaker, may eliminate more than 3,000 positions after demand for the metal plunged.

“The export outlook is not going to improve anytime soon,” said Marco Valli, an economist at UniCredit MIB in Milan. “Shipping within the euro region will probably continue to ease as well.”

Total euro-area exports fell 11 percent in January from the previous month, adjusted for seasonal factors, while imports dropped 7.3 percent, today’s report showed. That left the trade deficit at 5.5 billion euros ($7.5 billion), the biggest gap since July 2008. Construction output rose 1.3 percent in January, separate data today showed.

‘Very Difficult’

This year will be “very, very difficult” for the region’s economy, European Central Bank President Jean-Claude Trichet said in an interview published today in the Wall Street Journal. Trichet said there was scope for a “progressive gradual recovery” in 2010, even though most economies are in a “situation where the trend is downward.”

The decline in foreign demand helped convince the ECB to cut its benchmark interest rate to the record low of 1.5 percent, which is still the highest among the Group of Seven nations. ECB council member Axel Weber said last week the bank is poised to lower rates further and may extend the maturities of its loans to banks to push down long-term borrowing costs.

The euro was higher against the dollar on speculation additional U.S. steps to help banks dispose of toxic assets will spur demand for higher-yielding currencies. The euro traded at $1.3663 at 10:45 a.m. in London, up 0.6 percent.

Global Recession

The Organization for Economic Cooperation and Development lowered its forecast for the euro-area economy as the global recession deepens. The economy of the 16 euro nations will contract 4.1 percent this year, an OECD spokesperson said last week, ahead of the official forecast due on March 31.

Auto exports from Germany, Europe’s largest economy, fell 51 percent in February as companies including Volkswagen, Bayerische Motorenwerke AG and Daimler AG cut production by up to 47 percent, the German carmakers association said on March 3. German plant and machinery makers will reduce output 7 percent this year and cut as many as 25,000 jobs, the association said.

The euro region registered a trade deficit of 33.2 billion euros last year, the largest since the currency’s introduction 10 years ago. That compared with a trade surplus of 15.8 billion euros in 2007.

While exports to the U.S. and the U.K. declined last year, shipments to China and Russia increased. Exports to Russia, the third-largest market for European goods, rose 15 percent to 78.5 billion euros. Shipments to China, Europe’s fourth-biggest market, increased 9 percent to 65.6 billion euros.

Europe’s 2008 trade deficit with China widened 6.5 percent to 119.5 billion euros, while that with Russia grew 15 percent to 39 billion euros. The euro area’s trade surplus with the U.S. narrowed 22 percent to 49.8 billion euros.

On a non-seasonally adjusted basis, the euro region’s overall trade deficit increased to 10.5 billion euros in January from 1.7 billion euros in December. Exports rose 4 percent, while imports increased 7 percent.