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Spain Improves Current Account Deficit

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Spain has just released details of it’s Current Account Balance for the month of March. This month’s deficit has improved significantly to a level of -€1.8B from the February reading of -€2.8B. This is an important reversal of a trend that has taken the county’s public debt to a level above 93% of Gross Domestic Product.

In an insight into the inflation situation in Spain, the country’s National Institute of Statistics earlier this morning published the preliminary Harmonized Index of Consumer Prices (HICP) for May. The year on year figure has fallen back to 0.2% from last month’s 0.3% reading. This was not unexpected by the market but it does not bode well for the either upcoming Eurozone inflation numbers or Spain’s own recovery progress.
The first quarter of this year saw Spanish GDP growth turn positive for the first time in over two years. Although the 0.6% expansion number was later revised downward, Spain still managed to grow it’s economy by half a percent in the first three months of this year.

Spain has clawed itself out of recession, at least for now. The return to growth is almost entirely driven by government spending as the authorities attempt fiscal stimulus. The efficiency of this is questionable, the significant increase in this government spending is deficit led and has pushed Spain’s public debt levels to one of the highest in the Eurozone. Although this has delivered some positive growth, this has been minimal and more to the point it is still uncertain whether there is any momentum present it the current expansionary trend.

Should the growth trend in Spain fail to take hold on this occasion then any future attempts to stimulate the economy will become much more difficult due to the growth in the debt burden. In order for Spain to reach escape velocity on this occasion it requires monetary stimulus from the European Central Bank to reinforce the current fiscal stimulus efforts of the domestic authorities.

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