Research Dept. News
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Monthly Report, num 356 - April 2012
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Spain: overall analysis - Foreign sector
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Growth in exports is slowing up
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Export performance will be crucial to determining the path of the Spanish economy's recovery.
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The foreign sector has become the driving force behind the Spanish economy over the last few years. The acute shrinkage in imports in 2009 and, subsequently, the greater recovery in exports cushioned weak domestic demand. However, the latest data available show a slowdown in the growth of foreign demand for Spanish goods. How this develops over the next few months will be crucial to determining the path of recovery for the Spanish economy. All this within a context of shrinking imports, which will help to continue correcting the trade deficit in 2012.
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In fact, the value of exports of Spanish goods increased by 35.8% between 2009 and 2011. As can be seen in the graph below, this growth exceeds that recorded in the main European economies. Even in Germany, the second largest exporting country in the world, growth in nominal exports during this period was less, namely 32.0%. The relative improvement in Spain's competitiveness compared with the rest of the euro area, measured in unit labour costs, and the gradual penetration of exports in the main emerging markets lie behind this trend. This helped to significantly reduce the trade deficit, which went from representing 9.7% of the gross domestic product in the second quarter of 2008 to 4.3% in December 2011.
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Exports grow by 3.9% year-on-year in January, the smallest increase in the last two years.
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However, a clear slowdown can be seen in the growth of exports, in particular as from the second half of 2011. This trend continued in January 2012, a month in which exports rose by 3.9% year-on-year. Although this is quite an appreciable advance, it is the smallest in the last two years. Weak demand in the euro area, which in 2011 was the destination for 53% of these exports, explains this slowdown. Demand for Spanish goods on the part of the rest of the monetary union members fell by 1.3% year-on-year in January. This figure contrasts with the trend in exports towards emerging markets such as Russia, the countries of Latin America and China, which grew by 37.1%, 20.3% and 14.6% year-on-year respectively in the same month. We expect the less dynamic European economy to keep export growth weak, particularly during the first half of 2012.
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The trade deficit shrinks by 25.8% in January 2012.
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In spite of this slowdown, the trade deficit shrank again in January, down 25.8% year-on-year, boosted by the squeeze in imports, namely 3.1% year-on-year. Of note is the improvement both in the non-energy balance, with a surplus of 225 million euros, and the energy balance. The latter, however, will continue high over the next few months due to oil prices remaining at relatively high levels.
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Financing needs reach the levels of 2003
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The current deficit reaches 3.9% of Spanish GDP in 2011.
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This improvement in the trade balance led the correction of the external imbalance in 2011, namely 9 tenths of a percentage point, to 3.7% of GDP. This level is close to those of 2003. The improvement in the services balance, boosted by the good performance of tourism, also helped to reduce the current deficit. For its part, the deterioration in the income balance prevented any larger correction, due to the increase in the cost of financing debt.
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We expect the current deficit to continue adjusting in 2012, coming close to 2% of GDP. This improvement will be mainly due to the reduction in the goods deficit. On the other hand, the surplus of the services balance and the deterioration in the income balance will slow up their growth rates this year.
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Use of European Central Bank facilities rises to 124 billion euros in 2011.
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With regard to the financial account, the Spanish economy's reduced need for external capital was accompanied, at the same time, by a change in the composition of financing. The only source of net capital inflows in 2011 was the European Central Bank (ECB), which rose to 124,056 million euros. This increase contrasts with the trend in portfolio and direct investments, which posted net outflows. We expect this trend to continue over the next few months, taking into account the significant liquidity auction held by the ECB in February 2012.
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