Current Account Surplus Here To Stay

BMI View: Spain's current account will post a surplus of 0.8% of GDP in 2013, as subdued domestic demand continues to restrict import growth and improving labour market competitiveness supports export growth going forward. Robust tourism receipts will ensure that there is a sizeable goods and services surplus in H213, although weak external demand and a modest recovery in domestic demand through 2014 will prevent the current account surplus from growing more significantly over the next few quarters.

We expect Spain's current account to post an annual surplus in 201 3, its first positive reading in over 20 years , as subdued domestic weighs on import growth and export s benefit from improving labour market competitiveness. Recently released data from the National Bank of Spain (BDE) has shown that this trend is already playing out, with the country's current account deficit shrinking by 74.6% year-on-year (y-o-y) to EUR3.2bn in Q113, from EUR13.6 bn in Q1 12. We expect to see this trend continue over the next few quarters, with better-than-expected export and tourism data prompting us to upgrade our current account forecasts to 0.8% of GDP in 2013 and 1.4% in 2014, from 0.4% and 0.8% previously.

The main factor that will drive Sp ain's current account into surplus is the country's rapidly rebalancing merchandise trade deficit, whic h shrunk by 72.5% y-o-y in Q113 to EUR2.5bn. Weak domestic demand has been one of the main contributors to this trend, with stubbornly high unemployment (27.2% in April), stagnant wage growth and the government's fiscal austerity programme weighing on consumer spending, restricting demand for imported goods. While we believe Spain's economy should begin improving modestly in 2014 (see 'Growth Outlook Bleak, But Economy Bottoming' , May 16) , which should prove supportive of imports, the severity of the country's economic downturn and fall in disposable incomes leads us to believe that import growth is unlikely to pick-up significantly anytime soon.

Surplus Here To Stay
Spain - Current Account, EURbn

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This article is tagged to:
Sector: Country Risk
Geography: Spain, Spain, Spain, Spain

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