Euro Zone Current Account - Economic Data Preview

The [B]Euro Zone Current Account [/B]deficit may narrow for the sixth consecutive month in April, but looking beyond the headline figure reveals a picture that is hardly encouraging for the currency bloc’s economic prospects. The trade portion of the metric released last week saw the deficit narrow more than economists expected and the capital side of the equation also seems supportive: Euro Zone countries’ stock exchanges rose 15.4% on average in April while benchmark 10-year bonds from Germany, France and Italy (the bloc’s top three economies) added an average of 2.3%. That said, the improvement in the Euro area’s trade position came as the fall in imports (-2.7%) outpaced that of exports (-1.3%), an ominous sign that suggests home-grown spending is relatively weaker than overseas demand. Private consumption is the largest component of overall economic growth so the latest trade data may be hinting that the Euro Zone will lag behind its main trading partners in seeing a meaningful recovery from the current downturn. This is not to say the Current Account deficit will necessarily continue to contract: support from capital flows may prove fleeting if risky assets reverse course as traders see stocks as overvalued relative to future earnings given theincreasingly negative global growth outlook, sinking top European exchanges. Indeed, a survey of economists conducted by Bloomberg forecasts that the current account deficit will slice 1.5% off GDP in 2009, the most in 9 years, and take off another 1.2% in 2010.