The role of intermediates in the EU-business collapse: cause, effect or both

Some important changes in intermediary goods trade have emerged over the last decade regarding the geographical structure of trade. Results of the intermediate goods trade analysis revealed that the composition effect is not the major explanation for the pronounced decrease of exports and imports of parts and components of the EU-27 countries. Thus, while the composition effect and possible the inventory adjustments may have contributed to the proportionately decline of exports and imports of parts and components, it seems insufficient to be responsible for the observed changes. However, severe decline of trade with intermediate goods is one of the reasons that explain why the trade decrease was even more pronounced than was suggested by the income elasticity of long-term trade. Observing the recovery of trade flows, we can expect a rapid expansion of the EU-27 trade if the sharp fall of parts and components was due inventory cycle, as empty stocks must be restored. There is however a risk that disruption / disintegration of supply chains caused by the financial crisis has a negative effect on trade during the recovery period