EU Foreign Trade: €435 billion lost in the first 7 months of 2020

Exportplanning estimates however highlight a partial recovery in Q3

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Europe Great Lockdown Conjuncture Global economic trends

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The health crisis, the Great Lockdown and the partial disruption of global value chains exerted a strong impact on international trade, particularly where the impact of the epidemic has been more severe. Since February 2020, as the epidemic in China faded and Covid19 spread in some European countries, the European Union has been the global centre of the epidemic, to be then replaced by the United States. The lockdown phase had therefore opened, to then reach many countries, albeit with different rigidity.

As a result, in the first 7 months of 2020 EU foreign trade recorded a contraction of 13% compared to the corresponding period of 2019, experiencing a fall in foreign sales of about €435 billion. ExportPlanning estimates for Q3-2020, however, reveal a picture that, although still negative, shows a substantial recovery, giving hope for a year-end far less penalizing than previously assumed.

The graph below shows the monthly year-over-year changes in EU exports in euros, by intra-EU markets, extra-EU and total exports. The orange background indicates that the variations are estimated1.

Fig. 1: Y-o-Y growth rate of EU exports (euro)

Source: ExportPlanning

After the April-May period, in which the contraction in foreign sales of EU countries was around 30% on both EU and non-EU markets, in June there was a substantial rebound, with a drop limited to about 10%. Despite the slight downturn expected in July, the estimated trend in August and - above all - in September, clearly indicates that, unlike other deep crises experienced in the past, the value of EU exports is expected to return rapidly to pre-Covid levels around the end of 2020.

In the third quarter of 2020, the rebound compared to the previous quarter is expected to be +15.6% in euros, with a y-o-y contraction of -8.5%: if in absolute terms it appears as a significant fall, in relative terms (i.e. with respect to the result of the second quarter of 2020, -24.5%), this is undoubtedly an encouraging result.

Of course, the intensity of the recovery will depend on the size of the effects of the "second wave" of the Covid19 pandemic, which is now a reality in many European countries: a possible sudden worsening of the outbreak, and consequent policies to stop economic activities, could deeply deteriorate the scenario of the coming months, affecting the current recovery.

The fact that the current crisis is characterized by a rapid recovery now seems to be clear: a comparison with the Great Recession of 2008-2009 can be useful to highlight the differences that have characterized the two crisis. The graph below shows the monthly year-over-year changes of EU exports in the two periods as indexes, placed equal to 100 in the month when the two crises began, respectively September 2008 and February 2020.

Fig. 2: Great Recession vs Great Lockdown

Source: ExportPlanning

Looking at the first three months, it is evident that the fall in EU foreign sales was more intense and dramatic during the Great Lockdown than during the Great Recession. However, while the third month (April 2020) represented a low point for the current crisis, the downward trend during the Great Lockdown was more persistent, stagnating for several months at levels about 20-30% lower compared to the beginning of the period. On the contrary, the current crisis marks an important rebound in the fifth period (June 2020) and, according to ExportPlanning estimates, in September EU exports are expected to fall back to levels just below 5% compared to February 2020.

Conclusions

The analysis carried out so far suggests that EU countries can look to the near future with cautious optimism, hoping for a much less negative year-end than assumed a few months ago. A necessary condition, however, will be the maintenance of a high level of attention to the pandemic, which cannot disregard the commitment of citizens and administrators in overcoming this terrible moment.


1 ExportPlanning estimates are based on ARIMA 12-term models divided into product-specific and country-specific. The models cover only intra-EU flows for the month of July 2020, while all flows for the months of August and September. ARIMA models allow to make reliable short term forecasts, if the data generator model does not undergo significant changes or shocks.