Research Dept. News
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Monthly Report, num 352 - December 2011
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Spain: overall analysis - Foreign sector
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The energy deficit continues to widen
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The foreign sector maintains its positive contribution to growth in the third quarter.
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The Spanish economy came to a standstill between July and September 2011. As had already happened in the previous quarters, the dynamism of foreign demand, contributing four tenths of a percentage point to growth in this period, offset the weakness in domestic demand. This good performance comes from the real growth in exports, practically double that of imports. Over the coming quarters, the lower boost from world trade and slower growth in Europe's economy suggest a deceleration in the pace of exports. However, the lethargy of domestic demand, with the consequent slowdown in imports, will keep foreign demand's contribution positive during 2012. Within this context, it's important to reflect on the future trend in the trade balance.
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The data available for September show a further increase in the trade deficit, for the second month in a row. In cumulative terms over the last twelve months, this reached 48.43 billion euros, 1 billion higher than the balance recorded two months ago. The slight upswing in imports during these summer months lies behind this deterioration.
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The rise in energy prices intensifies the growth in imports.
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However, a breakdown of imports shows that most of its year-on-year increase was down to higher prices. This situation differs from the one seen in exports and the main reason is the greater relative weight of the energy component in the case of the former. As a consequence, the rise in prices of energy products, more than 25% that month, had a greater effect on the value of foreign goods entering the country.
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The trade deficit falls to 4.5% of GDP, boosted by the non-energy component.
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Given this situation, the cumulative energy deficit for the last twelve months continued to widen, reaching 3.8% of gross domestic product (GDP) in September. This figure is half a point above the rate for December 2010. Nevertheless, the good performance by the non-energy component, falling by 1.6% to 0.7% of GDP in this period, helped to reduce the total deficit by four tenths of a percentage point to 4.5% of GDP. In accordance with our expectation that oil prices will remain at their current level, the energy deficit will continue to widen up to the first quarter of 2012, albeit at an increasingly slower rate.
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Oil prices and the slowdown in Europe's economy will determine the trade balance in 2012.
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In addition to the pressure exercised by energy prices on the deficit in the short term, this trend will also depend on how the European market performs, which accounts for around 65% of Spain's exports. The slowdown in growth expected for member states of the European Union points towards a slower rate of growth in exports in the first half of 2012. In fact, September's figures already show some indication of this deceleration, with 4.8% growth in exports to Europe year-on-year compared with 19.3% the previous month. However, the extent of its effect on the trade balance will depend on the decrease in imports. In this respect, if Spanish demand for foreign goods drops off more than exports, the trade deficit will be able to narrow in 2012.
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Tourism accelerates the current deficit's rate of contraction
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The current deficit speeds up its rate of contraction in August...
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In spite of a slight deterioration in the balance of goods, the cumulative current deficit for the last twelve months speeded up its rate of contraction in August, with a fall of 18.0% year-on-year. This correction is due to the good performance of the balances of services and transfers, higher than the increase in the deficit recorded in the balances of goods and income.
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...and comes close to our forecast of 4% of GDP for 2011.
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On the other hand, we expect the income balance deficit accumulated over twelve months to continue growing until the end of the year. Between December 2010 and August 2011, this has increased by more than 5 billion euros up to 27.11 billion, due to higher financing costs for Spain's private and public debt. Nonetheless, we expect the correction in the current imbalance to slow up over the last few months of the year, coming close to a deficit of 4.0% of GDP in 2011.
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