Keeping on the subject of previous posts I ‘ll make a smaller post on the services balance during the Euro area.

The Ameco database does not provide services trade broken down between Intra and Extra-EU so only aggregate data are reported. The above chart makes it clear that the services surplus was quite stable moving from an average of 4% GDP before the Euro to a 6% surplus after the Euro introduction. Services imports were also very stable at 6% GDP making services exports the only source of volatility.

Going through scatter plots of the exchange rates and the services surplus leads to interesting results. REER of either EU-15 or the 35 industrial countries do not produce any significant relationship which probably suggests that labour costs had only marginal impact on the services sector. On the other hand, the NEER and the surplus show a strong upwards slopping trendline:

Normally a currency appreciation should lead to lower external demand. One assumption is that services exports are not actually related to the NEER but to other (global) trends. Nevertheless, no clear relationship emerges between global GDP or trade growth rates (using WEO data) and the services exports or surplus. The best fit comes from Euro area GDP growth data and services exports.

Interestingly, a strong relationship emerges if one examines the Brent US$ price and services exports which also suggests that exports are not driven by local factors:

In general, services seem to be relatively inelastic to labour costs and local developments, probably due to their global perspective. The following chart from the Levy Institute paper is helpful to determine exactly what role each services sector played in the examined period:

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