Euro depreciation will boost euro-area external trade

Significance They should confirm that the recovery is on track, with a growth rate similar to that seen in the first quarter. The demand breakdown, due for release on September 4, will allow assessment of the growth contribution from domestic and external demand. Since mid-2014, the euro has weakened significantly against the currencies of the euro-area's two major trading partners, the United Kingdom and the United States. However, whether the depreciation has boosted the euro-area's exports and improved its trade balance remains unclear. GDP data up to the first quarter suggest the opposite, while detailed monthly trade data show that the euro's depreciation has coincided with a recovery in the extra-euro-area exports of several member countries. Impacts The extra-euro-area trade balance will improve further, both for the euro-area as a whole and for most member countries. Changing export volumes will have ripple effects on intra-euro-area trade and, in coming months, also on overall activity. External trade will make a positive contribution to growth in the second half of 2015 and an even stronger one in 2016. China takes too small a share of euro-area exports for its slowdown to affect the area's trade significantly.