Europe’s current account surplus is about to surge over the next few years, forecasts Peter Hooper at Deutsche Bank. One reason is that everyone wants to pursue exports as an exit from the current economic challenges. The euro is also likely to appreciate at a dramatically slower pace than we’ve seen over the last 10 years.
Chart 6 shows how strongly the “exchange rate” has increased in the last decade. However, the government debt crisis and the resultant fiscal consolidation may lead to a smaller increase in the exchange rate. For our projection of the current account beyond 2010, we assume that the EMU real effective exchange rate based on unit labour costs continues to increase in the coming years but at a slower pace.
Even nations such as France and Spain could join Germany as net-exporters, with current account surpluses:
According to our model, the current account surplus will increase to EUR300bn, or close to 3% of GDP, by 2015. The main drivers of this are the rebalancing within the euro area and the rising export ratio to the EMs. Chart 10 shows the projections for the entire euro area. It also shows how the area’s current account surplus may be allocated across larger member states. We assumed the deficit countries will rebalance current accounts and achieve small export surpluses. We further assume that the surplus countries, in particular Germany and the Netherlands, will maintain their export orientation.
Which could eventually lead to trade tensions with the U.S.:
The projections clearly suggest that the rebalancing needs of peripheral EMU countries will eventually challenge the growth models of the export-oriented surplus countries. The projected 2015 EMU surplus of close to 3% of GDP is relatively large. It seems reasonable to expect that the US would urge the euro area to reduce this surplus.
(Via Deutsche Bank, Current account adjustment in Euroland, Peter Hooper, 17 November 2010)