Research Dept. News
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Monthly Report, num 305 - September 2007
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Spain: overall analysis - Foreign sector
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Trade deficit moderating growth
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Trade deficit continues to ease.
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In the first half of 2007 the trade deficit was 46.22 billion euros. While compared with one year ago the trade deficit is 7% higher, the growth rate of the trade imbalance is tending to moderate. In terms of cumulative balance for 12 months, the trade deficit has gone from year-on-year growth of 20.6% in June 2006 to 9.4% in June this year. Increases of more than 35% in the expansionist year 2005 have therefore been left behind. In addition, the export/import ratio stood at 66.5% in the first half of 2007, one decimal less than in the first half of 2006.
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The continuing increase in the trade deficit is due to the fact that exports, in spite of a good growth rate (6.6% year-on-year in value terms in the first half-year) are growing less sharply than imports (6.7% year-on-year). In real terms, growth of exports has been affected by the increase in export prices (3.6% year-on-year), putting the growth figure at 2.9% year-on-year. On the other hand, with growth of a mere 0.3% year-on-year in import prices, the real increase in imports went to 6.4% year-on-year.
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Exports on good track largely due to European growth.
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This strength shows up in nearly all sectors. Capital goods and motor vehicles, two of the flagships in Spain’s exports (together they make up approximately 40% of total exports), grew by more than 5% year-on-year in the first quarter.
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Another significant sector, chemical products, was even more dynamic with an increase of 9% year-on-year in exports. The most notable exception to this upward trend showed up in energy products for which exports were down by 13.2% year-on-year. With regard to imports, the current trend reflects the strong appetite of Spain’s domestic demand, especially in investment. Imports by the capital goods sector, which alone generates a quarter of all Spain’s imports, were 9% higher than those one year ago. There were also major increases in raw materials and consumer durables.
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From a geographical perspective, we note that Spanish exporters continue to benefit from European recovery. Exports to the Euro Area were up 7.4% year-on-year in the January-June period, the result of the good situation returns offered by markets in France (up 7.4%) and Germany (7.0%). Outside the European Union, we should mention the sharp increase in sales to Russia, which grew by 38% year-on-year. With regard to imports, in a situation similar to that shown by exports, the strength of purchases from the EU (7.0% year-on-year) moved above imports from outside that area, which rose by only 6.2% year-on-year.
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Balance of payments: drop in incomes balance compensated by gains in trade balance
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Current account deficit increases by 25% year-on-year in past 12 months.
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In May, the current account deficit stood at 8.18 billion euros, as against an imbalance of 5.68 billion euros in April. This rise was largely due to the increase in the deficit in the incomes balance, followed some distance away by the increase in the deficits in the trade balance and current transfers.
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When we compare the monthly figures with cumulative figures for 12 months, we note that the worsening of the incomes balance is the biggest culprit in the increasingly poor situation in the current account balance. In the past 12 months, in spite of the fact that in amount it is scarcely a third of the negative figure for the trade balance, the negative contributions of the incomes balance and the trade balance have tended to come close to each other, going to 7.72 and 7.93 billion euros respectively.
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Worsening of incomes balance coming close to that of trade balance.
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With regard to the financial sphere, referring always to cumulative figures for the last 12 months ending May, we should point out that direct investment outflows (42.21 billion euros) were 7% higher than those reported one year earlier. In complete contrast, portfolio investment inflows stood at 179.33 billion euros, a level 51% higher than in the same period in 2006.
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