Eurozone trade deficit hits 13-year high as energy crisis rages, Reliance on Russian gas leaves bloc vulnerable to Ukraine invasion

xizhimen · Feb 16, 2022

Eurozone trade deficit hits 13-year high as energy crisis rages

Reliance on Russian gas leaves bloc vulnerable to Ukraine invasion

ByTom Rees
15 February 2022 • 6:17pm

Surging energy prices have pushed the eurozone’s trade deficit to a 13-year high as a heavy reliance on gas imports leaves its economy exposed to war in Ukraine.

The bloc's trade deficit – the difference between exports and imports – widened from €1.8bn (£1.5bn) in November to €9.7bn in December.

The value of imported goods jumped 37pc year-on-year in December as energy prices rocketed and a trade deficit with China widened. The seasonally adjusted trade gap was at its biggest since mid-2008.
Gas prices in Europe are more than three times higher than a year ago with the rise in imports more than offsetting a 14pc climb in exports of goods.

It came as the European Central Bank warned of a potential €84bn blow to the region’s economy if its gas supplies are severed by a Russian invasion of Ukraine. It said a hit to household incomes from the energy crisis threatens to dampen the recovery, causing more headaches for ECB president Christine Lagarde.

The region has consistently enjoyed a trade surplus in the last decade but it swung to a deficit in November and December amid the energy price volatility. While the eurozone’s trade surpluses have widened with the US and UK, its deficit with China grew due to strong demand for goods.

Claus Vistesen, chief eurozone economist at Pantheon Macro, said the region’s trade surplus “has now officially evaporated” after “a violent reversal in the past six months”.

“Exports are doing fine, but imports are absolutely soaring,” he said. “The eurozone’s otherwise unmovable trade surplus in goods is being compressed by a sharp rise in imports, due to accelerating energy costs and still-high demand for manufactured goods from China.”

Europe is heavily reliant on imports of oil and gas and in particular from Russia, leaving it vulnerable to the current flare-up in tensions over Ukraine.

Around 40pc of its gas imports come from Russia while Moscow is trying to tighten its grip on supply with the Nord Stream 2 pipeline. However, gas prices cooled on Tuesday after geopolitical tensions were eased by Russia returning some of its troops to their bases.

It came as the ECB drew up grim scenarios revealing the economic blow the region faces if its gas supplies are curbed by a Russian invasion of Ukraine.

The ECB warned a 10pc plunge to eurozone’s gas supply would reduce economic output by 0.7pc – equivalent to an £84bn hit, based on 2019 GDP figures. Austria, Greece and Italy are expected to suffer a larger than average impact from gas supply woes while the mining, paper and chemicals industries were the worst affected.

Vanessa Gunnella at the ECB said: "The euro area is heavily dependent on imports of both petroleum-based energy products and natural gas.

“Higher gas – and electricity – prices reduce households’ real disposable income and purchasing power… and thus private consumption.”

Eurozone households are suffering their biggest inflation squeeze on record after prices rose by 5.1pc in January compared to a year earlier.
The surge is piling pressure on the ECB and Ms Lagarde to more aggressively fight inflation by lifting interest rates, which are still deep in negative territory.

The Bank of England has already lifted interest rates twice in three months in response to inflation.
While the ECB attempted to talk down investor expectations for rising borrowing costs at its meeting earlier this month, markets expect it to tighten policy to some extent this year.