Research Dept. News
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Monthly Report, num 357 - May 2012
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Spain: overall analysis - Foreign sector
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The growth in exports is showing signs of wearing thin
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According to the International Monetary Fund, world trade will slow up its rate of growth in 2012.
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Exports of goods and services had demonstrated significant dynamism over the last two years. As a consequence, forecasts suggested that the foreign sector would offset weak domestic demand in 2012, subsequently becoming the main engine of the economic recovery. However, February's figures confirmed the slowdown in goods exports revealed a month earlier. This trend is in line with the lower growth in world trade forecast by the International Monetary Fund (IMF) for this year. In particular, it expects exports by advanced countries to rise by just 2.3% year-on-year, 3 percentage points lower than last year's growth. Given this scenario, it seems advisable to slightly revise the forecasts for the foreign sector in 2012.
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The trend in real exports, i.e. adjusted for the price effect, posted a 0.2% fall year-on-year in February. This is the first time they have shrunk since October 2009. As can be seen in the graph below, this drop in real exports maintained the downward trend shown since January 2011. It is highly likely that weak external demand is the reason for this slump in growth.
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In fact, the trend in nominal goods exports reflects the weakness of demand in the euro area, the destination for more than half the products exported by Spain in 2011. In the first two months of this year, exports to single currency countries were down 1.3% year-on-year, compared with the 9.2% year-on-year growth recorded for last year as a whole. During these first two months of 2012, of note were the falls in exports to Italy and Portugal, down 8.0% and 9.2% year-on-year respectively.
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Exports to the euro area fall by 1.3% year-on-year during the first two months of 2012.
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However, trade with members of the common market was not the only one to record a significant slowdown. During the first two months of the year, year-on-year growth in exports was 13.1% in Asia, 5.2% in Latin America and 1.8% in North America. Respectively, these figures are 8, 14 and 19 percentage points below the increases recorded in 2011.
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Our forecast for the foreign sector's contribution to economic growth is revised downwards.
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This trend, and the euro area's poor economic prospects, have led us to reduce slightly our growth forecast for exports in 2012. This revision will undoubtedly reduce exports' contribution to the growth in gross domestic product (GDP) although the effect will be partly offset by a greater fall in imports. This can be put down to weakening demand, both domestic and external, and therefore the fall in imports to meet this demand. In short, the ultimate contribution of the foreign sector will shrink slightly in 2012.
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With regard to the value of imports in February, this picked up by 6.6% year-on-year, boosted by the energy component, which grew by 31.2% in the same period. This figure is much higher than those posted over the last few months due to the large increase in the volume of energy imports after several months almost at a standstill. A greater demand for energy goods, caused by the low temperatures recorded in February, could lie behind part of this rise. As a consequence, the trade deficit increased by 15.7% compared with February 2011 in spite of the improvement in the non-energy balance, reaching a new surplus of 547 million euros in February. Looking to the future, however, we expect the trade deficit to start correcting again.
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The rise in the risk premium damages the income balance deficit for 2012.
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If we broaden our analysis to the balance of payments as a whole, we can see a further correction in the current deficit in January of 7.2% year-on-year. However, the slowdown in the process of adjusting the external deficit reveals two main obstacles to lowering the deficit.
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Firstly, the continual rise in the surplus of the services balance is starting to show signs of exhaustion. In particular, the number of tourist visits in the first quarter of 2012 rose by 2.6% compared with the same period a year ago and this figure represents a fall of 4.8 percentage points compared with the growth recorded in 2011. A second aspect to take into account is the deterioration in the income balance deficit, particularly after the sharp rise in financing costs for Spain's debt in April. Both factors have led us to increase our forecast for the current deficit for 2012 as a whole to 2.4% of GDP, 0.3 percentage points above the previous figure.
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