Europe is about to have the world’s largest trade surplus

Europe is about to have the world’s largest trade surplus


One of the most dramatic economic shifts currently taking place in the world is in the oil-producing countries of the Persian Gulf—until recently swimming in excess cash but now, as oil plummets, turning to a chronic trade deficit. Their misery, however, is to Europe’s benefit. Because of those lower oil prices, there is a very real possibility that the European Union will become the world’s largest surplus economy next year.

These are takeaways in a note to clients (pdf) from Michael Pearce at Capital Economics. Look at Pearce’s chart, which tracks the impact of $60-a-barrel oil. The Gulf’s considerable turn of fortunes means a trade deficit for the first since 1998, a time when oil prices plunged to $10 a barrel.

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(Capital Economics)

But for China and the euro zone, $60-a-barrel oil means lower import payments and an improvement in their trade balances, worth 0.2% of global GDP in each case. Another big shift is in the US, whose oil imports have plunged from about 11 million barrels a day in 2008 to 7 million now, offset by domestic oil production surging to 9 million. The US trade imbalance looks likely to drop to below 2% of US GDP, its lowest since 1997.

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