Cooling prices, falling imports highlight euro zone's malaise

Thu May 16, 2013 5:03am EDT

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* Euro zone annual inflation down to 1.2 pct in April

* Bloc's trade surplus widens to 22.9 bln euros in March

By Robin Emmott

BRUSSELS, May 16 (Reuters) - Falling prices in Germany and France pulled euro zone consumer inflation to a three-year low in April while imports fell 10 percent in March, as new data showed the depth of the bloc's downturn.

The sharp drop in annual consumer inflation to 1.2 percent, confirmed by the EU's statistics office Eurostat on Thursday, highlights the risk of deflation in the euro zone, which slipped into its longest ever recession at the start of this year.

Prices in Belgium, Germany, Greece and France fell in April from March, and Greece remained in deflationary territory for a second month, along with non-euro country Latvia which is due to become the bloc's 18th member next year.

Falling world oil prices are behind the drop in inflationary pressures, and the European Central Bank cut interest rates to a record 0.5 percent low this month, aware that inflation risks falling further below their target of just under 2 percent.

Energy prices fell 1 percent in April from March in the euro zone, the single biggest drop in Eurostat's index.

But falling prices also highlight how households are not spending and companies are not investing, dampening the pace of a recovery that could emerge later this year.

The euro zone, which generates almost a fifth of global output, wallowed in recession for a sixth straight quarter at the start of this year, Eurostat said on Wednesday, and economists do not expect growth until next year.

The impact of the bloc's debt and banking crisis was evident in the euro zone's international trade balance for March because a 22.9 billion euro ($29.5 billion) surplus was due to a 10 percent fall in imports and no increase in exports compared to the same month a year ago, on a non-seasonally adjusted basis.

Demand in Asia and the Americas for the euro zone's cars, wine and luxury goods is one of the few things that could help lift the bloc out of recession and the lack of export growth in March is likely to be of some concern to policymakers.

While Spain is regaining some of its business dynamism and exports are growing again, Germany and France, Europe's two largest economies, have stagnated, with the French economy tipping into recession in the first quarter of this year.

Confidence in the euro zone's economy dropped for a second month in a row in April, and morale darkened significantly in the core countries, particularly in France and Germany.

($1 = 0.7775 euros) (Reporting by Robin Emmott; editing by Rex Merrifield)

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