Fabian Demicoli

Commission publishes report on Euro Area

Against the background of weaker
economic activity across the globe, the July edition of the Quarterly Report on
the Euro Area examines recent trade developments at the global, EU and Member
State level in detail. Overall, world trade activity has recovered reasonably
well following the collapse of global trade in 2009. Spurred by strong demand
in emerging market economies, it now seems to be approaching its long-term
growth trend but will probably expand at lower rates than in the boom years of
the previous decade.

Although a potential disruption of trade finance does not
appear to be a limiting factor at the current juncture, the repercussions of
the financial crises in advanced economies are likely to continue to weigh on global
trade, with consequences both for its geographical and its product composition.

At the euro area level, the crisis does
not seem to have aggravated the downward trend in global export market shares
already observed since before the crisis, but seems to have affected the
geographical and product specialisation of its exports. Looking ahead,
sustained import demand from non-EU emerging markets and a rebound of import
demand in new EU Member States should contribute to support euro area exports
in the coming years. Due to the impact of the financial crises and increased
competitive pressures from emerging market suppliers, the euro area is,
however, facing specific challenges in some export sectors, particularly in
machinery and transport equipment.

At the euro area Member State level,
the report shows that the import content of exports is high and rising,
particularly in smaller Member States, a trend which has important implications
for ongoing current account rebalancing processes.

The strength of export performance in
recent years appears to have been mainly driven by changes in geographical and
product market shares, rather than by countries' initial geographical and
sectoralspecialisation. Export performance appears to be only partly related to
price competitiveness, which reaffirms the need to for policy measures –
including at the euro area level – to improve non-price competitiveness,
including through higher competition in the services sector, export promotion
programmes and the promotion of R&D and skills.

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