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Export slowdown case for ECB rate cut

Monday, September 17 15:31:54

A slowdown in euro zone exports in July, plus muted wage growth, could increase the odds for an interest rate cut by the European Central Bank before the end of the year to try to revive the region's economy.

The export data, published on Monday, showed the heightened risks of the euro zone sliding into recession in the third quarter after it contracted 0.2 percent year-on-year in the second quarter.

The European Union's statistics office said the unadjusted trade surplus in the 17 countries using the euro was 15.6 billion euros ($20.51 billion) in July, up from 2.1 billion a year earlier. Exports surged 11 percent in annual terms and imports only 2 percent.

But adjusted for seasonal factors, the trade surplus was only 7.9 billion euros, down from 9.3 billion in June, as exports fell 2 percent month-on-month and imports eased 1.2 percent. "The sharply increased euro zone traded goods surplus for July masks some worrying developments," said Howard Archer, economist at IHS Global Insight.

"The appreciable drop in euro zone (adjusted) exports in July heightens concerns that slower global growth is increasingly weighing down on foreign demand for euro zone goods," Archer said. "This reinforces belief that the euro zone is headed for further GDP contraction in the third quarter," he said. "We expect the ECB to trim interest rates to 0.50 percent in the fourth quarter with a move highly possible as soon as October."

Eurostat also released data on Monday showing total hourly labour costs grew only 1.6 percent year-on-year in the second quarter.

Economists said this was likely to keep inflationary pressures subdued and add to arguments for an ECB rate cut before the end of the year.

"Although euro zone consumer price inflation climbed back up to 2.6 percent in August from 2.4 percent in July, there seems little reason why the ECB cannot cut interest rates from 0.75 percent to 0.5 percent," Archer said. (C ) Reuters