Economcs commentary - Title: Euro Zone Posts Current Account Deficit

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Euro Zone Posts Current Account Deficit in August

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OCTOBER 22, 2009, 5:32 A.M. ET

FRANKFURT -- The euro zone's current account swung back into a deficit in August, as the economy's export-led recovery paused for breath after a strong run over the late spring and early summer.

The current account posted a seasonally and calendar-adjusted deficit of €1.3 billion ($1.95 billion) from a revised surplus of €3.7 billion in July, according to data released Thursday by the European Central Bank.

Exports fell 2.7% to €105.5 billion, after rising in each of the three previous months, while imports edged up 0.5% to €99.5 billion.

The figures were in line with analysts' expectations, which had been primed by earlier national data, especially from Germany, which accounts for over half of total euro-zone exports.

Carsten Brzeski, an economist with ING Bank in Brussels, said he expects the setback to be temporary, and that exports should continue to recover as global demand picks up, irrespective of the sharp rise of the euro on the foreign exchange markets in the last month and a half.

"Euro-zone exporters have learned to live with a strong euro over the last years ... although of course it will start to hurt a bit" if the single currency continues to rise, he said. The euro rose above $1.50 for the first time in a year on Wednesday, but fell back slightly Thursday, recently trading at $1.4950.

The trade surplus of €6 billion and services surplus of €1.8 billion were offset by a wider deficit in current transfers, which rose to €7.2 billion from €6.3 billion in July, and a slightly narrower deficit in income of €1.8 billion.

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Over the last 12 months, the 16-member area recorded a current account deficit of €106.5 billion, 1.2% of the estimated gross domestic product.

The ECB also said net portfolio flows reversed in August, as reviving equity and credit markets attracted a net €57.3 billion. In July, the area had net portfolio outflows of €11.7 billion, revised from an initial estimate of €23.0 billion.

Euro-zone equity markets received net inflows of €40.7 billion, while credit markets saw inflows of €12.7 billion. The overwhelming part of the latter, €11.5 billion went into money-market instruments, while only €1.3 billion went into bonds. The ...

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