Eurozone Current Account Surplus Slips to €21.0 Billion

The 19 bloc euro area today posted figures which showed an expansion in their current account, despite a shrinkage in the account surplus for the month of July there was a record surge in investments. The surplus recorded for the 19 country euro zone reached €21 billion, as it dropped from a previous value of €29.6 billion which was mostly fuelled by rising net portfolio investments of €58 billion. This was higher than the €11.6 billion it reported for the month of June. The European Central Bank revealed that over a 12 month period, the eurozone's cumulative current account surplus was €343.2bn or 3.2 per cent of the bloc’s total economic output.

The current account provides a measure of the balance of goods and income within the euro area. It has mounted a surprising rally from financial deficit on the trail of a financial crisis as it soared to record highs in April this year.

The surplus in July is made up of a €26.4 billion goods surplus, which is €5.6 billion lower than it was in the previous month, services was seen at €4.9 billion and primary income held firmly at €3.4 billion.

This was offset by a €13.7bn deficit in secondary income, said the ECB.“The increase in net foreign assets was driven by rising foreign direct investment and portfolio assets”, said Claus Vistesen at Pantheon. “Eurozone investors increased their stock of FDI by €16bn, while foreign holdings of direct investments in the eurozone declined by €4bn.”

There were stronger inflows for direct and portfolio investment for the month with the former strengthening to EUR52.8bn from EUR11.6bn in June. Overall portfolio and direct inflows remained robust for the first seven months of 2016 with a combined surplus of EUR597.9bn from EUR 368.5bn the previous year. The shift primarily reflected a sale of overseas assets by Eurozone residents. This net strength was offset by net outflows on the financial account, mainly in the form of a sharp increase in outflows of currency and deposits.

There is evidence that the current account surplus has peaked with poor export data a significant underlying factor, but there will still be underlying upward pressure on the currency from the current account with net Euro depreciation dependent on further outflows on yield grounds. The currency will therefore potentially strengthen sharply if there is any hint that the interest-rate cycle has turned, maintaining pressure for dovish forward guidance from the ECB.