Italy Balance of Payments June 2012

Bank of Italy released the Italian balance of payments data for June:

The trade balance has clearly improved by a large amount, with trade in goods registering a surplus of €2.85bn for the 12-month period ending at June 2012, compared with a deficit of €25.24bn during the corresponding period last year. Services registered a deficit of €5.35bn,almost half than €9.06bn a year ago, while the total current account balance was -€30.06bn compared with -€59.85bn.

What is worrying is the financial account. Portofolio investment made a very largw swing from +€61bn to -€84.4bn, mainly due to outflows of €95.6bn in securities (especially medium/long-term). Other investment is only positive due to a positive balance of €279.08bn from Bank of Italy. There’s actually a very large capital flight out of MFIs which instead of a positive €30.8bn balance now have a deficit of €123.7bn (a change of more than 150bn) with assets and liabilities all playing their part, while ‘other sectors’ had a €8.9bn reduction in foreign assets.

Although the Italian real tradable sector shows very strong signs of improvement, the capital flight out of Italy is very large.

Spanish Balance of Payments May 2012

The BdE (central bank of Spain) released data on the balance of payments till May 2012 today. The current account developments are actually quite positive:

Both the goods and services balance have improved significantly with the general current account deficit (Jan- May) shrinking from €23.25bn in 2011 to  €16.88bn in 2012 or around 1.6% of GDP. Given the current macro situation (shrinking domestic demand and wages), a yearly current account deficit of no more than 3% GDP is quite possible, levels that were not seen since the introduction of the Euro.

What is very worrying on the other hand is the financial account deficit:

Excluding BdE this one exploded from net positive €14.6bn in 2011 to -€163.2bn in 2012. Extrapolating the results, the yearly deficit might reach €350-400bn or 32-37% of GDP, a capital flight visible only in the most severe foreign exchange crises. Looking into the data, direct investment is still positive (€6.7bn) while portfolio investment is negative €65.5bn and other investment negative €108.9bn. Portfolio investment is related with shares and bonds while other investment with direct loans. The table below provides more detailed information on investment in Spain:

It is clear that:

1. Portfolio investment in MFIs is highly negative since February.
2. Portfolio investment in General Government (securities) was negative till April (with very large flows) but somewhat positive in May. If that is a structural change remains an open question.
3. Other investment in MFIs shows very large outflows which should probably be attributed to a large drop in loans (with MFIs having €446.82bn in foreign deposits in 2012Q1).
4. General government managed to maintain positive flows in the other investment category (although its loans were only €39.9bn in 2012Q1). Other resident sectors did not show any large changes.

The data are mixed in the case of Spanish investment abroad:

What mainly stands out is Other Investment with large outflows to MFIs. If the financial accounts of RoW for 2012Q1 are any guide (when Other investment abroad from Spain to MFIs was a bit more than €29bn) net issuance of liabilities was mostly towards MFIs (€29bn) while sectors such as non-financial corporations and households (which could have moved deposits abroad) were actually negative.