Europe’s current account surplus has soared to EUR 51 billion in June, reaching a staggering EUR 370 billion over the past 12 months. With a surplus equivalent to 2.5% of the GDP, European MFIs have significantly increased their holdings of foreign assets by EUR 547 billion in the last year alone. Not to mention, the Euro system’s reserves now stand at an impressive EUR 1,267.5 billion, as highlighted by Société Générale FX strategist Kit Juckes.
The Impact of Euro’s Collapse on Europe’s Economy
Following the Euro’s collapse in 2022, EUR/USD plummeted from 1.24 to 0.96, triggering a terms of trade crisis and a robust US economic recovery. Despite the challenges, Europe’s trade position has improved, and the terms of trade have stabilized. However, the Euro, currently valued at 1.10, is only halfway towards its pre-collapse levels against the dollar.
One key factor driving Europe’s current account surplus is the combination of a weakened currency and subdued domestic demand. European imports have dropped by 25% since the peak of the energy crisis, while European investors have shown a strong appetite for purchasing foreign assets, as reflected in the capital account data.
While a stronger domestic demand and increased domestic investment could propel the Euro back to 1.30, the data suggests that the Euro has not fully recovered from the 2022 terms of trade shock, despite the resilience of the Eurozone economy. This resilience serves as a stabilizing factor for the Euro’s value.
Analysis and Implications for Investors
For investors, Europe’s impressive balance of payments signals a robust economy with strong export capabilities and a favorable investment climate. The current account surplus and increased holdings of foreign assets indicate a growing confidence in European markets.
With the Euro showing signs of recovery but still below its pre-collapse levels, investors may find opportunities for growth and diversification in European assets. Additionally, the stability provided by the Eurozone’s resilient economy can offer a sense of security for investors looking to navigate volatile global markets.