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Exports boost the correction in the trade balance
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The foreign sector's good performance will soften the economic squeeze in 2012.
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Since 2008, the foreign sector has become the main source of growth for the Spanish economy. This good performance is due to the sharp shrinkage in imports at first and then the good pace of exports and particularly to tourism picking up in 2011. As a consequence, the foreign component's contribution to gross domestic product (GDP) was slightly lower than the annual average of 2 percentage points during these four years. With regard to 2012, we expect the foreign sector to continue contributing positively. However, there are several factors that might affect the intensity of the latter. These are: the evolution of Europe's economy, the euro's exchange rate and oil prices.
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In fact, the data available for the fourth quarter of 2011 show clear signs of weakness in the country's domestic demand. Within this context, the pace of growth of imports fell sharply. In November, the consumption of foreign goods grew by 5.3% year-on-year compared with the average 11.2% rise during the first nine months of last year. This contrasts with the faster pace of growth in exports that, in November, stood at 13.4% year-on-year.
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The fall in the volume of imports reflects the slowing up of domestic demand.
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This disparate trend is accentuated if we analyze the real evolution of trade flows; i.e. net of the price effect. Of note is the fall in real imports in the month of November, 4.9% year-on-year, compared with the 8.7% rise in the volume of exports over the same period.
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The trade deficit reduces by 31.1% year-on-year in November.
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As a result, the trade deficit fell by 31.1% year-on-year in November and the cumulative imbalance for the last twelve months stood at 47.2 billion euros. This improvement is mainly due to the evolution in the non-energy component, with a surplus of 192 million euros. The surplus with the European Union lies behind this good performance.
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Looking to the future, we expect the recession in Europe's economy in 2012 to reduce the rate of growth of Spanish exports. However, this effect will be partly offset by the slight depreciation expected in the euro over the first half of this year, which will boost exports to the rest of the world. At the same time, weak domestic demand will also affect the consumption of foreign goods, which will more than likely lead to a fall in Spain's imports in 2012.
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We expect the trade balance to continue adjusting in 2012.
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In short, Spain's trade balance will maintain its path of adjustment throughout this year thanks mainly to the reduction in the non-energy deficit. All this in a context where oil prices will gradually converge towards levels slightly lower than the present, reducing the pressure of the energy balance on the total deficit.
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The current balance records its first surplus since 1998
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The transfer and services balances permit a current surplus in October.
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If we widen our analysis to the whole of the current balance we can see that, in October 2011, this totalled 456 million euros. This figure, the first surplus recorded since August 1998, represents an improvement in the current balance of 3.1 billion euros compared with the same month last year. However, a breakdown shows that close to two thirds of this adjustment correspond to the good performance by the transfer balance, reflecting a transfer from the European Union to the public administrations.
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Another component that played an important part in this improvement was the services balance, boosted by the good performance of tourism revenue, in October growing by 7.9% year-on-year. However, the slowdown in the growth of tourist visits to Spain over the last two months of the year suggests that revenue will have less room for improvement in the remainder of 2011. In our opinion, the weakness of the European economy in 2012 will ensure this trend continues in 2012.
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The trade deficit will fall below 3% of GDP in 2012.
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In addition to less dynamism in the services balance is the increase in the income balance deficit, resulting from the rising cost of financing Spanish debt. Nevertheless, we expect that the improvement in the balance of goods will help to reduce the current deficit to below 3% of Spanish GDP in 2012, compared with the 4.0% we estimate for 2011.
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