Research Dept. News
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Monthly Report, num 355 - March 2012
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Spain: overall analysis - Foreign sector
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The trade deficit continues to fall, reaching the levels of 1998
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The foreign sector cushions the drop in activity in the fourth quarter of 2011.
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Once again, in the fourth quarter of 2011 the foreign sector provided the only piece of good news for the Spanish economy. For the sixth quarter in a row, exports contributed positively to the quarter-on-quarter trend in Spain's gross domestic product (GDP). Their contribution of 1.4 percentage points to quarter-on-quarter growth was crucial to avoid a greater economic decline in this period. But, unlike what had happened in previous quarters, exports' good performance occurred within a context of a real reduction in trade flows. In 2012 we expect imports to fall again while exports stagnate. This will lead to further adjustment in Spain's trade deficit, which in 2011 represented 4.3% of GDP, 7 tenths of a percentage point below the previous year's figure. The trend in oil prices and the recovery of European economy, which in 2011 was the destination for 66.0% of Spanish exports, will determine the intensity of this adjustment.
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In fact, both real exports and real imports were down in the last quarter last year, with quarter-on-quarter falls of 1.6% and 6.5% respectively. The greater weakness of Spain's domestic demand compared with the rest of the European Union is mostly to blame for this sharper fall in imports. This performance is also reflected in the trend for the nominal series. As can be seen in the graph above, both trade flows slowed up their growth as from the second half of 2011.
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The trade deficit falls to 46.3 billion euros in 2011.
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Over the last few years, the trend in exports has always been more favourable than that of imports. This has helped to reduce the trade deficit to 46.3 billion euros, slightly above 4% of Spanish GDP, a level it has not reached since 1998. This gradual adjustment in the external imbalance is due to the good performance by the non-energy balance throughout last year. This can be put down to the acceleration in exports of capital goods in 2011, 15.2% year-on-year, and the fall in imports of consumer durables, namely 18.8% in the same period. For its part, the energy deficit rose by 4 tenths of a percentage point of GDP compared with December 2010, reaching 3.8% of GDP.
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All the evidence points to further corrections in the trade deficit in 2012.
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Looking to the future, our macroeconomic scenario foresees an adjustment in the trade deficit that is once again boosted by the good performance of the non-energy balance. It might even post a positive balance. This improvement will be partly offset by the price rise in Brent crude recorded in the first few months of the year, which we expect to remain high in the medium term. However, a greater rise in energy prices or a slower than expected recovery in the European economy could compromise the correction of the trade imbalance.
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The current balance records its first surplus since 1998
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The current deficit reaches 3.9% of Spanish GDP in 2011.
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If we widen our analysis to the current balance as a whole, we can see that this had a deficit of 3.9% of GDP, according to National Accounts system figures. This means a reduction of 7 tenths of a percentage point compared with December 2010. Broken down by component, based on figures up to November, we can deduce that this smaller imbalance was the result of the improvement in all accounts except income. The latter declined due to the higher interest rates demanded for Spanish debt.
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In addition to the smaller deficit in the balance of goods, the services balance also showed significant improvement last year. This was due to the good performance by tourism revenue, up by 8.4% year-on-year in November. For 2012 we expect tourist visits to slow up. Nevertheless, weak domestic demand will continue to improve the balances of goods and services. That's why we expect the current deficit to reach a level equivalent to 2.1% of GDP by the end of year.
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Resorting to the ECB becomes the main source of external financing in November 2011.
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With regard to the financial account, a significant modification can be observed in the pattern of financing for the external imbalance as from the second half of 2011. The main source of capital during the first eleven months of last year was the European Central Bank (ECB), up by 84.4 billion euros compared with the same period in 2010. This was because of the increased tensions in Europe's sovereign debt markets over this period, making financing conditions via other channels much tougher. Considering the large liquidity auctions held by the leading monetary authority in December 2011 and February 2012, we expect this trend to continue over the next few months.
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