Research Dept. News
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Monthly Report, num 292 - June 2006
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Spain: overall analysis - Foreign sector
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Trade deficit keeps growing despite recovery in exports
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Trade with abroad recovers in first quarter.
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Foreign trade in goods showed sharp growth in March of around 20% nominal, with higher growth in imports. This sharp increase may be somewhat upwardly biased by the calendar effect of Easter Week. Nevertheless, figures for national accounting for the first quarter (corrected for seasonal and calendar effects) suggest that this rise could be somewhat more substantial. Both exports and imports of goods have shown a quite notable rise increasing growth in both cases to around 12.5% by volume, that is to say, a rate very much higher than in previous quarters.
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The rise in imports, affected by the impact of higher-cost oil (now at 354 euros a ton, 53.3% above the average in the first quarter of 2005), is also due to the quantity factor in the non-energy field. In the first quarter, according to Customs Department figures, that is to say, not seasonally adjusted, growth of non-energy imports came to 13.7% real or 22.1% if we look only at non-food consumer goods. Among these goods, the avalanche is more than notable in the case of consumer electronics, car parts, clothing and footwear. Naturally, the strength of domestic demand and the substitution of domestic production by foreign products lies behind the major strength of purchases from abroad.
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Imports up sharply, especially non-food consumer goods.
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On the export side, there was also notable improvement. Real growth estimated by the Customs Department came to 12.7% in the quarter. On the one hand, this was thanks to the extraordinary strength in foreign sales of capital goods (41.1% more by volume) related to the export of ships which was without equal in 2005. In addition, this was thanks to the good situation in non-food consumer goods (14.5%) due to a rise in exports of cars, consumer electronics and clothing. In terms of markets, third countries were the cause of the rise in exports given that markets in the European Union, while improving, showed relatively weaker.
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Exports also recovering thanks to positive state of third country markets.
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The sharp recovery in the flow of trade abroad did not involve substantial changes in the increase of the trade deficit from the situation in previous months. In the first quarter this had reached 21.12 billion euros, 25.7% higher than in the same period in 2005.
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Current account deficit again disappointing in February
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Current account deficit continues to rise with steep drop in services balance.
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The figure for the current account balance again worsened notably in February with the drop in various headings, mainly in transfers, services and goods, which meant holding to the trend in previous months. Looking at a shorter time-frame, the figures for the first two months also fail to raise much optimism. The cumulative deficit as of February (15.15 billion euros) was up 26.6% compared with the same period in 2005. By heading, the worst performance showed up in the services balance, seeing that the surplus dropped spectacularly because of the sharp rise in payments, especially in non-tourist services. The trade balance was worsened although not as sharply as in previous months. Finally, both the incomes balance and the transfers balance showed lower deficits, which partly made up for the poor results in the former headings.
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The current account deficit was compensated, although only to a very small extent, thanks to the surplus in the capital balance amounting to 651 million euros in the early months of the year. In spite of this, net world borrowing of Spain’s economy in this period stood at 14.5 billion euros, 27.3% more than in 2005.
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Direct foreign investment down while Spanish investment abroad up sharply.
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In the financial sphere, direct foreign investment in Spain was down sharply in the first two months of 2006 as opposed to Spanish direct investment abroad which in the same period was up nearly 5 times thanks to the strength of investment in the corporate field. Similarly, real estate investment was also up sharply (72.7%) probably due to the need to diversify risk in assets held in other countries.
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