Spain capital outflows rise nearly 40% in June

Spain saw close to a 40 percent rise in capital outflow in June, Bank of Spain data showed on Friday, as investor confidence in a country struggling to balance its public accounts eroded further.

The central bank reported that net capital outflow, not including central bank operations, was 56.6 billion euros ($71 billion) in June, after an outflow of 41.3 billion euros in May.

A total of 315.6 billion euros of capital has left the country in the year to end-June, equivalent to nearly one-third of the country’s economic output. In the first half of 2012 capital outflow was 220 billion euros.

Spain’s economy entered a recession at the end of last year, and falling output and tax revenues will test the country’s ability to cut its public deficit to meet European Union demands.

One analyst said Spain’s dire situation would be helped if the country calls for a rescue package to lower its financing costs, something the government is contemplating.

“The capital outflow is due to a lack of confidence from foreign investors in the country’s solvency, and I hope this changes when the ECB starts buying debt,” said Nicolas Lopez, economist at M&G Valores.

The ECB is expected to unveil details of its latest bond-buying mechanism aimed at helping to lower the financing costs of struggling euro zone states when it meets on September 6.

The data came as Spain’s banks are awaiting the first instalment of a rescue package of up to 100 billion euros to help them to recapitalize, which should arrive in late September or in October.

The Bank of Spain also reported the country’s current account registered a deficit of 257.2 million euros in June, versus a gap of 1.3 billion euros in the same month a year earlier.

The trade deficit alone stood at 2.2 billion euros in June, versus 3.4 billion euros in June 2011 as the pace of increase in exports outstripped the increase in imports.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell