Euro Area Current Account Developments

After a decade-long period of surpluses, soaring energy prices sent the euro area current account into a deficit in 2022. This occurred against the backdrop of a lingering COVID-19 impact, and in parallel with gradual recovery of the tourism sector. After its strong fall, the euro area current account balance has been on an improving path this year, as energy prices have fallen from their 2022 highs, and assisted somewhat by a small but visible reduction in the volume of net energy imports. However, energy prices are expected to remain above their pre-pandemic levels exerting a continuous downward pressure on energy balances in the medium term. The asymmetric nature of these shocks caused current account balances to widen across the globe over the past three years, undoing the narrowing that had previously been underway. The fading of these shocks will affect the normalisation of current accounts worldwide and in the euro area and may result in a changed landscape going forward. This paper reviews recent developments in the euro area external position, discusses the main drivers and provides some insights into the likely determinants of the external position in the near term.