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

Author

Listed:
  • Gunnella, Vanessa
  • Schuler, Tobias

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

Suggested Citation

  • Gunnella, Vanessa & Schuler, Tobias, 2022. "Implications of the terms-of-trade deterioration for real income and the current account," Economic Bulletin Boxes, European Central Bank, vol. 3.
    • Handle: RePEc:ecb:ecbbox:2022:0003:1
    Note: 2700331
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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/focus/2022/html/ecb.ebbox202203_01~a3fe116ba1.en.html
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    Citations

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    Cited by:

    1. Bobeica Elena & Holton Sarah & Koester Gerrit, 2023. "Bringing Inflation Back Under Control," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(3), pages 136-141, June.

    More about this item

    Keywords

    current account; energy prices; terms of trade;
    All these keywords.

    JEL classification:

    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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