Wednesday, July 02, 2008

Spain Balance of Payments April 2008

Spain had a current account deficit in April of 8,726.9 million euros, slightly up on the 8,608 billion euros registered in April 2007. According to the Bank of Spain this deterioration is due to two factors, an increased in the goods trade deficit (oil), and a growing deficit on the income account (structurally not good news, but if you will borrow so much money, what can you expect?). As far as the trend in the current account deficit goes, during the January to April period the total deficit was 40.72 billion euros, while in the same months of 2007 the total was 35.245 billion euros. This is a year on year increase of 15%.

This rate of increase is considerably down on the 26.3% increase registered over January to March 2008, but since April this year is obviouslt such an unusual month (the Easter factor, data I am seeing from country after country for all kinds of items confirm this view, beware the ides of April) it would be very premature to draw any conclusions from this at this point. Other items worthy of note in this month's data are the fact that foreign banks sent funds into Spanish deposits again in April, which enabled Spanish banks to also transfer funds back out of Spain. More importantly perhaps, the liabilities of the Spanish banking system with the eursystem were up again in April, and sharply, by 15.869 billion euros.

The Trade Deficit

To get some idea where we are here, it is perhaps worth mentioning that the goods trade deficit was 7,198 billion euros in April ( up from 6,966 billion euros in April 2007), while the services surplus was 1,372 billion euros (up from 998 billion in April 2007). Over the January to April period the goods deficit was 31.653 billion euros (up from 26,788 billion euros in January to April 2007), while the aggreagte services surplus was 4,849 billion euros (up from 4,031 billion euros in the same period last year).

Both imports and exports were up substantially on the year (exports 25.1% and imports 18.2%) but since April is the month which normally contains easter, I don't think anything very interesting can be concluded about this at this point.

The negative income balance was up in April, to 1.909 billion euros, compared with 1.727 billion in April 2007. The balance on current transfers (which contains of course remittances from migrants) was a negative 991 millon euros, a deficit which was up around 10% on the 913 millon euros registered in April 2007. Again, as the Spanish economy slows it will be interesting to see how the remittances are affected.

In April the capital account had a positive balance of 258 millon euros, down from the 278 millon positive balance registered in April 2007.

The Financial Account

This large deficit in the Spanish current account - which resulted in a net financing requirement of 8.469 billion euros (up from 8.330 billion in March 2007) was basically (after taking into account the net movements on the financial account) covered by an increase in the liabilities of the Bank of Spain with the Eurosystem of 15.869 billion euros.

Spain's net external financial balance with the rest of the world resulted in an outflow of funds to the tune of 7.862 billion euros in April (as compared with a net entry of funds of 21.097 billion euros in April 2007). This increase in the inflow of external funds is very large indeed (and we will look in detail at some of the ingredients below), but the end result is that the net indebtedness of the Bank of Spain vis-a-vis the rest of the world was up by 16.053 billion euros in April (as compared with the net reduction of indebtedness of 13.771 billion euros in April 2007).

The net outflow of funds in April was mainly the result of changes in the category of "other investments" (which is basically made up by loans, deposits and repos), financial derivatives, and to a lesser extent portfolio investments.

Direct investments saw a net inflow of 1.05 billion euros, which was down on the net outflow of 5.186 billion euros in April 2007.

If we now come to repos, loans and deposits, there were net outflows in April of 6.013billion euros - while in April 2007 there were net inflows of 6.931 billon euros. Flows in and out of deposits at banks and other financial instutions are far and away the most important item here (about two thirds of the total, loans constituting most of the rest, while repos are pretty insignificant at this level).

The bottom line is that in April there was a movement of funds by Spanish financial institutions into deposits outside Spain to the tune of 16.846 billon euros while, on the other hand foreign investors moved funds into Spanish deposits and lent funds to the tune of 10.833 billion euros. As a result the lines on the chart below spike up again in April, although much less sharply than in January/February. Now let's see what happens in May.

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