Is the Russia-Ukraine war a factor for the Highest-ever EU trade deficit?

The European Union's trade in goods balance registered a significant deficit of Euro 432 billion in 2022, reaching its lowest level since 2002, as per Eurostat. The reason behind this deficit, in particular, is due to a rise in the value of energy imports. This steep rise started towards the end of 2021 and continued through most of 2022, as per the Eurostat reports. Notably, in 2022, driven by increasing prices, extra-EU imports ( +41%) and exports (+18%) have reached their highest year-on-year growth rates recorded over the last ten years. Data has indicated that the EU's internal market has taken centre stage in EU nations' goods trade, despite the fact that the share of intra-EU and extra-EU movements in total trade in goods differed significantly, indicating, to some extent, past links and physical position.

Among EU members, Luxembourg had the greatest percentage of intra-EU imports (90 % of total imports), while Czechia had the highest share of intra-EU exports. (82% of its total exports). Furthermore, the lowest share of intra-EU imports has been recorded in Ireland (35% of its total imports), which is mainly because its primary trade partner is the United Kingdom. Further, the lowest share of intra-EU exports has been noted in Cyprus (26 per cent of its total exports). In 2022, the Netherlands imported a large share of goods from extra-EU countries (only 39 % of its imports have intra-EU) and exported them within the European Union (71% of its exports were intra-EU).

Role of the Russia-Ukraine war in the Deficit

The war between Russia and Ukraine has triggered a massive shock to the global economy, especially to energy and food markets, as per the European Central Bank (ECB) report. Due to the war, the supply has been squeezed which has led to an unprecedented increase in prices. Russia has been "a key energy supplier to the euro area before the war", according to the ECB. Russia and Ukraine played a large role in euro area imports of food and fertilisers before the start of Russia’s invasion. More importantly, the euro area has an open economy, which makes it vulnerable to disruptions in global markets and value chains. The vulnerability of the Euro area is due to the heavy reliance on energy supplies, which made for more than half of the eurozone's energy consumption in 2020.  However, according to the European bank, the Russia-Ukraine war has added to the increased pressures that have been building up in the Eurozone since the post-pandemic recovery and pushed up consumer prices, especially for energy and food.