Eurozone August current account surplus widens, suggests subdued “Brexit-effect” for now

Data from the European Central Bank showed on Thursday that Eurozone’s current account surplus widened to a 3-month high in August. Eurozone posted a current account surplus of €29.7 billion ($32.6 billion) in August after €27.7 billion in July.

Details of the report showed that surplus on trade in goods increased to EUR 30.9 billion from EUR 28.8 billion. Meanwhile, the surplus on services decreased to EUR 4.8 billion from EUR 5.1 billion. Primary income rose to EUR 6.6 billion from EUR 5.4 billion in the prior month, while secondary income showed a shortfall of EUR 12.6 billion versus a EUR 11.6 billion deficit in July.

The widening gap is mostly because of weakening Eurozone domestic demand growth, which has lowered imports this summer. As domestic demand in the Eurozone is weakening under higher oil prices and slower unemployment declines, imports are likely to continue to suffer and exports are under pressure from a turbulent trade environment.

"The first two months of post-Brexit trade have shown cautious improvements in nominal exports, while imports have declined. This means that the “Brexit-effect” remains subdued for now," said Bert Colijn, Senior Economist at ING in a report.

Current account surplus are nominal data and prices are rather volatile. The next net export data could be very different. Overall contribution of net exports to GDP could come in lower than the nominal data indicate. Weaker GDP growth likely in the last months of 2016.