Draghi’s Magic Words Have Fixed Nothing: Recovery Mirage in Spain Dissipates

The mirage in Spain pretending to be a recovery, has officially dissipated into wind-blown ashes.

Spain’s trade deficit doubled in the first half as imports soared. Spain is again dependent on foreign financing.

Via translation from Libre Mercado, Spain Again Borrows Abroad to Finance Consumption.

One of the main and genuine green shoots making the Spanish economy begins to show the first worrying signs of weakness. It is the foreign sector, one of the few economic engines of the country in recent years. And not because of the export slowdown , as the significant increase in imports.

Spain recorded a trade deficit of 11.882 billion euros in the first half of the year, almost double a year ago now, when this same gap stood at 5.824 billion.

According to the Economy Ministry report released Monday, exports slowed their growth, after rising just 0.5% yoy. Imports, meanwhile, rose 5.3%.

“Spain is still in debt,” says economist Juan Ramón Rallo. “That 6 million unemployed can only increase imports, not domestic production illustrates our problems,” he warns.

In the same vein, economist Javier Santacruz adds that the most worrying of these data is that we are not competitive (exports stagnate), but “imports soar to finance domestic consumption,” as shown by the increase internaual foreign car purchase (+ 17.6%) and non-durable consumer goods (+ 19.1%).

In fact, overall imports do not even account for energy products, which fell by 4.1%.

Spain has been living on borrowed time for years, accumulating a huge debt to maintain their level of consumption and investment-their standards of living. Between 2002 and 2007, Spain was amassing a growing external deficit, as more and sell less abroad (exports) and bought more (imports), bringing its foreign debt grew.

This imbalance is reflected in a very specific indicator, the current account deficit, which in 2007 reached a record high close to 10% of GDP. That is, the entire country that year said external financing close to 100 billion euros to cover their consumption and investment.

The fact that the trade deficit has risen again after the minimum economic rebound in recent quarters is a sign of weakness, because it demonstrates the strong dependence Spain still external financing to maintain their level of consumption and investment.

Think Spain is going to meet its budget deficit goals for 2014? If so, think again.

Mike “Mish” Shedlock