COVID and current account balances in the euro area: zooming in on services
10 August 2022
The coronavirus (COVID-19) pandemic led to one of the largest contractions in global output since the Second World War and substantially affected global trade. In most euro area countries, trade in goods and services fell significantly in 2020 and current account balances responded strongly to the changing economic and social environments. While the aggregate current account balance of the euro area (measured as a share of GDP) did not change significantly, substantial shifts occurred in the balances of individual euro area countries (Chart 1). For example, Cyprus, France, Greece and Malta recorded considerable deteriorations in their current account balances. By contrast, Ireland and Lithuania recorded improvements in their current account balances in the second half of 2020.
Chart 1. Euro area current account balance
Percentage of GDP; dashed lines show the euro area countries recording the largest surplus and deficit for each quarter
Because of the pandemic-related restrictions, exports and imports of services fell even more than overall economic output. In the third quarter of 2020 euro area exports of services accounted for 7.2% of GDP and imports of services dropped to 6.4% of GDP (Chart 2).
Chart 2. Euro area trade in services
Percentage of GDP
|■||Transport, exports||■||Travel, exports||■||Telecommunications, exports||■||Intellectual property charges, exports||■||Other services exports|
|■||Transport, imports||■||Travel, imports||■||Telecommunications, imports||■||Intellectual Property charges, imports||■||Other services imports|
|― Services balance|
Some services categories were affected more than others. In particular, international travel almost came to a standstill and transport services were also significantly affected. At the same time, some services weathered the crisis unscathed or even expanded. For example, euro area exports and imports of telecommunications services continued to grow throughout the pandemic, despite the contraction of overall trade in services.
Chart 3. Euro area current account transactions with main counterparties
Percentage of euro area GDP
Note: Hong Kong SAR excluded from data for China and Offshore financial centres.
Chart 3 shows the euro area’s current account transactions with its main counterparties, measured as a share of euro area GDP. The euro area account balance was positive for all non-euro area trading partners in Europe, except for the Czech Republic and Bulgaria during some quarters. This positive balance also occurs with Brazil, Canada, India, the United States and Hong Kong SAR. However, there is a persistently negative current account balance with China and Russia. It is worth noting that since 2014 the euro area’s current account balance with the Czech Republic, the United Kingdom and Poland registered its largest deficit or surplus during the year of 2020.
The balance of payments records and summarises all economic transactions between the residents of a country or an economic area (in this case, the euro area) and non-residents over a specific period of time (typically a month, a quarter or a year).
The balance of payments consists of the current account, the capital account and the financial account.
The different accounts within the balance of payments reflect different economic resources (i.e. goods, services, income, or financial assets) provided and received. The sum of the balances on the current and capital accounts represents the net lending (surplus) or net borrowing (deficit) of the country or economic area in question.
The financial account shows net acquisitions and disposals of financial assets and liabilities between residents and non-residents. The net balance of the financial account is conceptually equal to the net lending or net borrowing derived from the current and capital accounts.
The structure of the balance of payments
|Current account||Goods||General merchandise, net exports of goods under merchanting and non-monetary gold (gold not held as reserve assets by the authorities).|
|Services||Manufacturing services, repair services, transport, travel, construction, insurance and pension services, financial services, charges for the use of intellectual property not included elsewhere, telecommunications services, computer services and information services, other business services, personal, cultural and recreational services, and government goods and services not included elsewhere.|
|Primary income||Compensation of employees, investment income, taxes on production and imports, and subsidies on products and production.|
|Secondary income||Current transfers (income distribution), in cash or in kind, between the economies (residents and non-residents). Examples include income tax, social contributions and benefits, and personal remittances.|
In the current and capital accounts, credit (export) and debit (import) transactions are recorded with a positive sign (+), and net transactions are calculated by subtracting debits from credits.
The balance of payments of the euro area and of its member countries follow the same framework, so the calculation methods across all 19 euro area countries are highly comparable. The balance of payments is produced in line with the guidelines of the IMF’s Balance of Payments and International Investment Position Manual (sixth edition).
Balance of payments and international investment position – including monthly and quarterly press releases.
The data used in this Insight is available in the ECB Statistical Data Warehouse and in the file at the bottom of the main article.