Spain | The return of negative external demand: Alarm signal or investment dynamism?

Summary

The latest data from the National Accounts of the INE provide an image that, at first glance, could revive old ghosts of the Spanish economy. Following a post-pandemic recovery supported by the foreign sector's contributions, the dynamics have shifted.

Key points

• Key points:
• The change in the contribution of external demand (which is specified in volume) has begun to reduce the current account surplus (which is determined in value).
• A chronic deficit that fuels superfluous consumption is just as dangerous as a structural surplus that fails to seize the future to enhance national activity.
• A country with a negative contribution, as Spain is beginning to show again, is importing foreign savings to cover its investment (or consumption) needs that exceed its domestic savings capacity.
• If the current deficit were driven solely by overconsumption or a bubble of non-performing real estate assets, we would be repeating the script before the Great Recession.
• We should not obsess over the sign of the current account balance in the short term, but rather with the quality of the underlying flows and their efficient use. The challenge for Spanish economic policy is not to repress domestic demand to force an artificial surplus, but to ensure that every euro of savings we import from abroad is allocated to projects that increase our productivity.

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