Trade balances have also improved in most euro area countries, which had experienced excessive domestic demand and substantial losses in price and cost competitiveness before the crisis. In most cases, this improvement has resulted from a combination of relatively strong export growth (particularly in Spain or Portugal) and very weak or negative import growth (notably in Greece).
The contraction of domestic demand continues to play a role in this adjustment. Part of this is cyclical, but it also reflects rebalancing away from previously unsustainable domestic demand growth. Demand has to be contained and supply has to increase, it is only that the supply adjustment takes more time.