Research Dept. News
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Monthly Report, num 338 - September 2010
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Spain: overall analysis - Foreign sector
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The energy imbalance continues to grow
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Trade deficit up 8.6% year-on-year in the first six months of 2010.
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The first half of 2010 closed with an 8.6% growth in the trade deficit compared with the same period a year ago, putting an end to the continual improvements recorded since the end of 2008. This decline took place within a context of significant growth in trade flows from Spain with other countries. Consequently, after the sharp fall in exports in 2009, these increased by 16.3% in the first six months of 2010 compared with the first six months of last year. However, this rise, the largest since 2001, was not enough to offset higher imports, growing by 14.5% in the same period.
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As can be seen in the graph below, the greater energy imbalance during the first six months of 2010, up 36.5% year-on-year, was the main reason for the trade deficit's decline in this period, resulting from strong growth in energy imports, up 31.1% year-on-year in the first six months of the year. A rise that, however, was exclusively due to the 27.5% rise in energy prices, while the volume of energy imports rose just 2.5%.
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Meanwhile, the rest of imports posted significantly lower year-on-year growth of 11.3%. This can be explained by a rise in the volumes imported, rising to 14.2%, compared with a 2.6% drop in prices for this period. The lower rise in imports allowed the non-energy deficit to continue improving, although more slowly than before, with a year-on-year change of 23.6%.
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The Eurosystem, the main resource for external financing
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June's figures point to further deficit growth.
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Far from putting a stop to this situation, the figures for June show a faster increase in the deficit, up to 45.6% compared with the same month in 2009. Should this trend continue, the trade deficit would end up at around 5% of GDP during the second half of the year; a figure that, although far from the maximums reached in 2008, is still very high. However, the economic recovery of some of Spain's main trading partners such as France and Germany and the devaluation of the euro might boost exports over the next few months, readjusting the trade imbalance.
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The current deficit continues to fall in the first five months of the year.
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This decline in the trade deficit is also reflected in the data available on the balance of payments up to May. According to these figures, the balance of goods saw a negative balance of 18.815 billion euros in the first five months of the year, 1.0% higher than the figure for the same period a year ago. However, the current deficit nonetheless continued to fall over this period, with a 15.0% drop year-on-year. This adjustment was mainly due to the improved deficit for the income balance that, up 38.3% year-on-year, was larger than the drop in the transfer account. The service balance remained practically the same.
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Strong growth in Eurosystem loans to Spanish financial institutions.
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An analysis of the monthly figures shows another annual fall in May's income deficit, as a result of lower investment income payouts. This was not enough to prevent a rise in the current deficit, however, its third consecutive increase, highlighting the change in trend recorded for this series. Nevertheless, the external financing needs of the Spanish economy, measured as the sum of the current balance plus the capital balance, continued to fall in May due to the latter performing well.
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The composition of financing in May shows that the Eurosystem was the main source of funding, totalling 42.402 billion euros. This figure, the largest since this institution was set up, is because the sovereign debt crisis has badly affected other external sources of financing. Greater Spanish direct investment abroad and the numerous foreign portfolio divestments during this month lie behind the net outflows of funds recorded for both items. On the other hand, short-term investment (loans, deposits and repos) which, during the period of financial turbulence was one of the main sources of funds, fell by more than 24.210 billion euros in May.
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