The external merchandise trade deficit rose by 176.2% y/y to EUR273.6m in January, according to the stat office (NSI) preliminary data. The trade deficit increase was underpinned by accelerating 20.3% y/y growth of imports. Import growth was on the back of almost all sectors except for oil and fuel products. Imports of refined petroleum products declined y/y, in our opinion due to expiring base effects, as the recovery of global oil prices started as of Jan 2017. Otherwise, imports of all other product categories were quite strong, in our opinion suggesting continued momentum of domestic demand in the new year. We expect that import growth will continue its strong growth, driven by rising domestic demand on the back of higher employment, increasing wages and recovering retail lending. The expected sustained upward trend of imports is likely to result in further expansion of the foreign trade deficit in the mid-term, in our opinion.
Exports also posted a strong 12.3% y/y increase in January following a 0.9% y/y decline in the previous month. It should be noted that the weak performance in Dec 2017 was likely affected by fewer working days. We still positively evaluate the export growth in January as it was visibly better than the average performance last year. The sharp growth was entirely on account of a 27.7% y/y growth of sales towards EU trade partners during the month, while exports to third countries fell for a third month in a row, by 16.3% y/y. The lower sales to non-EU countries were mainly due to falling exports to Turkey, as well as partially to declining sales to Egypt, the United Arab Emirates, India and Gibraltar.
The declines were related to weaker food, tobacco, cigarettes and oil products’ sales. On the other hand, exports to the EU should maintain their stable growth rates in the next months, benefiting from the positive economic developments in the EU, in our view.