Against the background of weaker economic activity across the globe, the July edition of the Quarterly Report on the Euro Area examines recent trade developments at the global, EU and Member State level in detail. Overall, world trade activity has recovered reasonably well following the collapse of global trade in 2009. Spurred by strong demand in emerging market economies, it now seems to be approaching its long-term growth trend but will probably expand at lower rates than in the boom years of the previous decade. Although a potential disruption of trade finance does not appear to be a limiting factor at the current juncture, the repercussions of the financial crises in advanced economies are likely to continue to weigh on global trade, with consequences both for its geographical and its product composition.

At the euro area level, the crisis does not seem to have aggravated the downward trend in global export market shares already observed since before the crisis, but seems to have affected the geographical and product specialisation of its exports. Looking ahead, sustained import demand from non-EU emerging markets and a rebound of import demand in new EU Member States should contribute to support euro area exports in the coming years. Due to the impact of the financial crises and increased competitive pressures from emerging market suppliers, the euro area is, however, facing specific challenges in some export sectors, particularly in machinery and transport equipment.

At the euro area Member State level, the report shows that the import content of exports is high and rising, particularly in smaller Member States, a trend which has important implications for ongoing current account rebalancing processes. The strength of export performance in recent years appears to have been mainly driven by changes in geographical and product market shares, rather than by countries' initial geographical and sectoral specialisation. Export performance appears to be only partly related to price competitiveness, which reaffirms the need to for policy measures – including at the euro area level - to improve non-price competitiveness, including through higher competition in the services sector, export promotion programmes and the promotion of R&D and skills.