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Citi: Painful changes in Greece are yielding some results

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Painful structural changes in Greece are yielding some results, making these economies more competitive, Citi notes in a report concerning euro area exports.

Citi explains that intra-euro area trade dynamics remains poor, euro area exports are growing, suggesting that euro area economies are beginning to rebalance away from domestic demand. One of the main threats to this more constructive scenario is a substantial appreciation of the euro.

The fiscal austerity cure being implemented across the euro area, mainly designed to tackle excessive budget deficit positions, is dampening domestic demand. The length of the adjustment in countries suffering from an overleveraged domestic sector will be partly dependent on their ability to generate positive contributions from net trade through their export performance.

Citi believes that there are three important characteristics (the geographical breakdown of goods exports, the state of manufacturing export order books, and the performance of exports since the start of the crisis) that will likely reflect a member state’s ability to outperform its peers, and therefore increase the likelihood of a successful adjustment.

According to the report countries with the largest share of exports going to the economies likely to experience the fastest growth rates (such as China, developing Asia, the Middle East, Africa and Latin America) are likely to outperform their peers. Based on IMF Direction of Trade statistics, Greece is the best placed of the euro area economies, with a 34% share of exports in these regions, followed by Ireland and Finland. The least likely to see a sizeable increase in their export performance would be the Netherlands, Belgium and Austria.

The two countries that have witnessed the sharpest deterioration in their export order book position are Germany and France.

To identify the countries that have enjoyed the strongest dynamics in external trade, Citi looks at the cumulative change in the share of exports of goods and services as a percentage of GDP over two periods, i) since the start of the euro area in 1999 to measure absolute performance, and ii) since the second half of 2007.

According to that, Germany tops the rankings with a cumulative increase of 13.2%, followed by Belgium (12.3%) and the Netherlands (11.0%).
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