Euro-area Too Dependent On World Trade (2 min read)
The big problem for the Euro-area is that it is geared primarily to international trade. And in a world of escalating trade war rhetoric, this means it will always lose out. To put this into context, if we look at the trade openness of the big three economics, we find that the sum of exports and imports as a share of GDP is at an eye-watering level of 90% for the Euro-area. That’s compared to 30% for the US and 40% for China (see chart). And the trends don’t help either: in the Euro-area it is increasing, in the US it is stable, and China’s is falling.
It’s not surprising that German ten-year bond yields have fallen to all-time lows of -0.2%. To put that into perspective, that’s lower than during the height of the Euro-area sovereign crisis in 2012 and the deflation scare of 2015-16. The euro has been gradually falling and seems likely to hit 1.10. We think that the most interesting market is Euro-area stocks, which are reversing their Jan-Apr rally. If trade war rhetoric doesn’t ease, then this reversal could have further to go.
Trade Openness Of the Big Three
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