Northern Europe to the rescue

It’s the UK, Greece, Spain and Ireland that have withdrawn demand support from the EU27. GUKIS? Their combined imports from fellow EU27 economies at the top of the boom (2006) were 657 billion euros. In 2010, that figure is likely to be 546 billion euros, making a decline of 112 billion euros or 17%.

Where is that void being made up? The northern economies. Germany, Benelux, and France will be importing about 143 billion euros more in 2010 than in 2006, marking a rise of about 10% (from a much higher base).

Contrary to conventional wisdom, Portugal and Italy will import more in 2010 than in 2006. Mind, these are nominal figures. But import growth in 2010 alone will be 10% and 20% in Portugal and Italy respectively. Yes, this is flattered by a trough in 2009, but this forecast probably underestimates the whole-year outturn as final demand in the northern economies begins ticking up sharply in the second half.

So it’s northern Europe to the rescue. Perhaps the better out-turn in their economies will soften the way politically for a more amenable approach to Greece and Spain (read: friendly restructuring). But in any case, those problems look like being isolated, so long as the EU27 growth dynamic is sustained. I think that is a good base case, in part because the economies in this part of Europe are complementary to the growth dynamic in the emerging economies, seeking northern Europe’s capital goods and luxury items.

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