Eurozone trade balance hits €4 billion deficit

The eurozone trade balance with the rest of the world collapsed to a €4 billion deficit in August from a record July surplus, official data showed yesterday.

The 16 countries using the single euro currency had a €12.3 billion surplus on strong exports and flat imports in July, and August's deficit ended a five-month run of trade surpluses.

While those surpluses were attributed by analysts to an increase in global purchasing power rather than to a richer and more confident Europe, the effects of a dollar currently at a 14-month low on currency markets have yet to be fed into the results.

The data therefore represents a substantial knock to confidence after massive improvement during the eurozone's climb out of the economic mire over the second and third quarters of this year.

The euro is approaching $1.50 and EU policymakers are concerned at the effect an idle US administration could have on exports from the bloc, in particular within its leading economy, Germany.

Some analysts say US authorities, despite repeated proclamations in favour of a "strong dollar" are happy to see the US currency weaken, which gives a welcome advantage to US exports.

European Central Bank president Jean-Claude Trichet has also warned that "the euro was not created to be a global reserve currency" among a series of pointed remarks on an issue rising up the political agenda.

"Eurozone exporters will be fervently hoping that the euro eases back," said analyst Howard Archer of IHS Global Insight.

The August trade balance for the 27-nation European Union as a whole, including Britain, also saw a massive retreat to a deficit of €12.1 billion after a revised €0.6 billion surplus in July.