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EU Economy Shifts From Almost Two Years of Trade Deficit to Surplus

large plastic euro symbol sculpture in Frankfurt outside large skyscrapers
The economy of the EU has rebounded to a trade surplus. Credit: The First Class Travel Guide from United States of America / CC BY 2.0 / Wikimedia Commons

After six consecutive quarters of deficit, the EU economy has finally shifted to a trade surplus with the rest of the world.

During the second quarter of this year, the European bloc recorded a minor surplus of €1 billion. This data comes from a recently published report by Eurostat.

The trade balance illustrates the proportion of exports and imports within an economy. In instances where a nation or, in this scenario, a collection of nations, exports a greater value of goods compared to its imports, it achieves a surplus or a positive trade balance. Conversely, when imports surpass exports, a deficit or negative trade balance emerges.

EU economy returns to trade surplus

The global demand for EU-produced chemicals, machinery, vehicles, food, and beverages played a pivotal role in the upward trajectory. These factors effectively countered the acquisition of energy commodities like gas and oil, the costs of which remain exceptionally elevated due to the ongoing war involving Russia and Ukraine.

According to Eurostat, “Recent trade data shows that in the second quarter of 2023, exports fell by 2.0% and imports by 3.5%, leading to a small trade surplus of €1 billion. This shows a clear improvement from the €155 billion deficit registered in the third quarter of 2022, the highest deficit level since 2019.”

The EU is heavily reliant on foreign suppliers of fossil fuels, which makes it susceptible to significant fluctuations in global market prices. Since the middle of 2021, the EU has been confronted with substantial expenses to secure energy resources, sustain economic operations, and prevent the looming threats of power outages or rationing.

According to the International Energy Agency (IEA), in the previous year, the EU expended nearly €400 billion solely on gas procurement. This financial outlay was directed towards substituting Russian deliveries, which were previously recognized for their cost-effectiveness prior to the Ukraine War.

This buying spree dramatically disrupted the trade equilibrium, propelling the EU into its most pronounced trade deficit since the inception of the single currency.

During the third quarter of 2022, the collective trade deficit of the 27 member states surged to €155 billion, marking a record high. Following this peak, the fluctuations began to stabilize as volatility and speculative activity in energy markets diminished.

As the EU curtailed its expenditure on gas and oil acquisitions, the trade balance recuperated and achieved a surplus in the second quarter of the current year. During this period, the EU observed a 15.6 percent reduction in energy import expenses compared to the previous quarter.

What different trade balances mean

Economists often regard a trade surplus to be preferable to a trade deficit. However, this is not always the case. Several other factors, such as growth, employment, and productivity also contribute to the health of an economy.

As an example, the United States, the globe’s largest economy, has consistently recorded a trade deficit since the 1970s without interruption.

Generally, whether a trade surplus or a trade deficit is considered better varies depending on the country’s, or in this case, economic bloc’s, financial goals. A trade surplus, where exports exceed imports, can lead to increased foreign currency reserves, serve as a positive economic indicator, and boost domestic industries.

On the other hand, a trade deficit in which imports exceed exports can provide access to goods not easily produced domestically, offer consumers more choices at competitive prices, and attract foreign investment. Ultimately, the preference for one over the other depends on a country’s specific economic circumstances and policy objectives.

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