The contraction of imports in Spain : a temporary phenomenon?; Volume 12, issue 2, March 2015

Spain's imports of goods and services fell by almost 17 % between 2008 and 2013, led by non-energy imports which fell by nearly 20 %. As a result, Spain's current account balance swung from a deficit of 10 % to a surplus of 1.1 % in just six years. Part of this remarkable change may be attributed to Spain's improved price competitiveness, which has led to a structural reorientation of the economy away from import-rich internal demand, and has prompted a process of import substitution. However the crisis-led contraction of internal demand is also likely to have contributed to the reduction in imports. By analysing the relationship between Spain's imports and relative prices and by examining separately the effects of internal and external demand, this analysis shows that much of the fall in imports was driven by the fall of internal demand - although this was partly offset by an increase in external demand. The improvement in cost competitiveness also had a significant and, most likely, a lasting effect. Another important reason for the fall in imports, however, is the short-term over-shooting of imports which followed from the fall in income. Spain's imports are therefore likely to recover some of their lost ground in the coming months - as we are indeed currently observing. Consolidation of the contraction in imports will depend on continued improvements in price competitiveness and on the consolidation of a growth model that is less dependent on domestic demand.