Implications of the terms-of-trade deterioration for real income and the current account

Vanessa Gunnella () and Tobias Schuler

Economic Bulletin Boxes, 2022, vol. 3

Abstract: The recent sharp increase in energy prices has significantly pushed up euro area import prices, resulting in a deterioration in the euro area terms of trade. As the demand for energy is rigid in the short term, this implies a transfer of purchasing power from the euro area to the rest of the world. We estimate a net income loss of 1.3 percentage points of GDP in the last quarter of 2021 as compared with the previous year. This consists in a drop of 3.5 percentage points of GDP due to the rise in energy prices, which is only partly offset by higher euro area export prices. The resulting widening of the deficit in the energy trade balance has reduced the euro area current account balance, and this effect is only partially compensated for by other components. JEL Classification: B17, F4

Keywords: current account; energy prices; terms of trade (search for similar items in EconPapers)
Date: 2022-04
Note: 2700331
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