The Euro Zone Current Account may see a bit of improvement in October: the trade balance portion of the report released last week swung back into positive territory in the same period after three consecutive monthly deficits. Importantly, the improvement in the headline figure was driven by a -4.6% drop in imports rather than vibrant overseas shipments. Indeed, exports fell -2.5%. The month-to-month volatility in trade figures makes looking an annualized numbers much more telling: despite the monthly improvement, trading terms deteriorated a hefty -78% in October from a year before. In fact, this marked the sixth consecutive month that the currency bloc’s trade position has registered large, double-digit drops from the same time in 2007. Indeed, economists forecast that 2008 will mark the first year in seven that the Euro Zone will see a trade deficit. Expectations extend to call for another deficit in 2009. This implies long-term downward pressure on the exchange rate: the deficit causes a net outflow of Euros which invariably floods the market with currency and drives down its value.
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