Spain’s Record Breaking Trade Deficit Brings Hope to The Economy

By: Brianda Penafort


Due to the current economic crisis in Spain, the eurozone’s fourth-biggest economy, they have seen a push by Spanish firms to expand to outside markets. In doing so Spain has manages to break its records by cutting its trade deficit by nearly half of what it was last year.

According to the Peninsula Qatar reports, the deficit dropped 48.1 percent in 2013 to reach a deficit of USD21.8 billion. The country’s export of goods and services hit USD321.7 billion in the year, up 5.2 percent from the year before it. This the highest level since records started being kept in 1971. The increase in exports has largely increased competitiveness as the numbers of exporters have also increased.

The crisis Spain has been experiencing lent itself to other sectors of the economy. Imports have experienced a 1.3 percent drop over the previous year as households continued to limit spending in a country where one in four people are out of work. Prime Minister Mariano Rajoy’s government is depending on exports to be an engine of recovery for Spain, which crawled out of recession with 0.1-percent economic growth in the third quarter. The nation has long been struggling with the shattering aftermath of decade-long property bubble that imploded in 2008. Overall Spain’s economy shrank by 1.2 percent over the whole of 2013 but the export boom helped Spain crawl out of recession with 0.1 percent economic growth in the third quarter.

Spain’s trade balance in March logged its first surplus since 1971, mainly due to the sharp fall in imports driven by falling domestic demand.

The government predicts the economy will expand by about 1.0 percent this year. The increase in exports to emerging markets which Spain has focused on like South Africa (+33.4%), Brazil (+28.8%), Middle Eastern countries (+24.9%), China (+4.7%) and Japan (+6.8%) is especially positive.

Last year exports such as automobiles, medicine, chemical products, iron and steel rose, the ministry’s figures showed. Spanish exporters also found success trading with fellow members of the euro zone, which accounts for just fewer than 50% of all Spanish goods bought abroad. This suggests that the falling inflation and lower labor costs that accompanied the recession are having at least some positive effects. This is making Spanish goods more competitive in countries that use the same currency.

The structural improvements made to increase the country’s external competitiveness have had a positive effect. Spain has changed their labor rules to give companies more power to cut wages, fire workers or modify their jobs to boost competitiveness and reduce the unemployment rate which hit a high 26.03 percent by the end of 2013.

Overall we can expect to see Spain’s trade deficit to follow the recent declining trends in the past quarters. This an all is helping the economy recover from the harmful effects the crisis has had, bringing hope that the economy will bounce back.



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