Markets News

UPDATE 1-Euro zone May trade in surplus, internal demand weak

(Adds economists’ comments, construction data, background)

BRUSSELS, July 17 (Reuters) - The euro zone recorded a trade surplus in May because imports contracted at a faster pace than exports, data showed on Friday, pointing to continued weakness in internal demand.

The seasonally unadjusted trade surplus of the 16-country area totalled 1.9 billion euros ($2.7 billion), against a deficit of 3.8 billion euros a year before and a 2.7 billion surplus in April, the European Union statistics office said. [ID:nBRQ007443]

Economists polled by Reuters had expected a surplus of 2.7 billion euros for May.

“The recent underlying improvement in the euro zone’s trade performance reflects the fact that imports are now falling more than exports,” said Howard Archer, economist at IHS Global Insight.

Year-on-year, unadjusted exports plunged 24 percent but imports fell even more, 27 percent, underlining the weakness of domestic and external demand amid the global economic downturn.

Seasonally adjusted, the surplus was 800 million euros, after 700 million in April, in an improving trend that follows large deficits in January, February and March.

Yet month-on-month, seasonally adjusted euro zone imports fell 2.8 percent and exports dropped 2.7 percent.

“This is clearly disappointing -- although industrial production recovered in May, this has yet to be seen in the trade data,” said Dominique Barbet, economist at BNP Paribas.

Euro zone industrial production rebounded 0.5 percent month-on-month in May, rising for the first time since August 2008 and adding to signs the worst European recession since World War Two was bottoming out.

Separately, the fragility of the euro zone economy was underlined by shrinking construction output, which fell 2.0 percent on the month in May for an 8.0 percent annual decline.

But the positive contribution from trade in the first two months of the second quarter could limit the overall contraction of the economy in April-June after a record 2.5 percent quarterly fall in the first quarter.

“Probably the contribution from trade to gross domestic product might not be as negative as expected earlier,” said Juergen Michels, economist at Citigroup.

“Nevertheless the second quarter is likely to show another fall overall in GDP, probably by around 0.5 percent quarter-on-quarter,” he said. The European Commission expects a 0.6 percent contraction.

Detailed trade data for May was not yet available, but a breakdown for January-April showed a sharp fall in the deficit in energy but also a smaller surplus in manufactured goods.

The euro zone’s trade deficit with China eased in January-April to 32.8 billion euros from 34.7 billion in the same period of 2008 while the trade deficit with energy exporter Russia more than halved to 7.2 billion euros. (Editing by Dale Hudson)