December 30, 2011 / 9:15 AM / in 6 years

UPDATE 2-Spain inflation eases, current account tips in to surplus

* EU-harmonised prices slip to 2.3 pct vs 2.9 pct

* National prices at 2.4 pct vs 2.9 pct in Oct

* ECB will need more info before rate decision-economist

* Oct current account sees surplus of 456.2 mln eur

By Paul Day

MADRID, DEC 30 - Spanish EU-harmonised inflation eased much more than expected in December to its lowest level in 13 months, while current account figures offered a rare sign of hope for its struggling economy, moving into surplus for the first time in 13 years.

Spain’s current account registered a surplus of 456.2 million euros ($589 million) in October versus a deficit of 2.66 billion euros in the same month a year earlier, the Bank of Spain said.

Consumer prices rose by 2.3 percent year-on-year in December according to preliminary figures, compared with a consensus forecast and previous reading of 2.9 percent.

That followed data on Thursday showing inflation easing in Germany for a third straight month, adding to the case for another cut in euro zone interest rates.

Reuters latest polling, however, shows economists believe the European Central Bank will hold off until the second quarter of next year after it eased monetary policy in both November and December.

“We will have to see how inflation develops in coming months after Germany’s figures yesterday and considering the depreciation of the euro,” Citi economist Juergan Michels said.

“I don’t think the ECB is going to cut rates in January, and probably won’t do so until it has more information that a recession is on its way.”

Euro zone flash data Jan. 4 is expected to report inflation eased to 2.8 percent from 3.0 percent in November, still well above the ECB’s target of close to 2 percent. ID:nL6E7NT1VR]

ECB Governor Mario Draghi has already said it was likely the euro zone economy would be in a mild recession by the end of the year.

Spain is widely expected to have already entered recession, with the Economy Minister saying last week the economy shrunk around 0.3 percent in the fourth quarter and many economists forecasting further contraction in the first quarter of 2012.


A large current account shortfall has been one symptom of Spain’s economic weakness, a reflection of lacklustre exports and how much it has to import as well as the large amounts companies, consumers and government have borrowed abroad.

The current account tipped in to surplus for the first time since August 1998, mainly due to a services surplus prompted by improvement in the tourist industry and a primary income surplus -- the difference between money paid abroad and money received.

The euro zone debt crisis has virtually closed international debt markets to Spanish banks and companies, cutting the level of debt payments they make to non-Spanish lenders.

The services surplus rose to 3.81 billion euros from 2.82 billion euros a year earlier and the primary income balance showed a surplus of 1.23 billion euros from a deficit of 1.01 billion euros last year.

Economist Nicolas Lopez at M&G Valores said that while the news was positive for a stagnating economy struggling with a high public account shortfall, it was unlikely to set a trend.

“While we’ve seen a surplus in October, for the whole year we’ll see a deficit of 3 or 4 percent. October’s figures could be due to seasonal effects, but we can’t say from this data that we will no longer have a deficit,” Lopez said.

“Even so, this is a piece of good news for the Spanish economy this year. Spain has managed to improve the trade deficit, the services balance is better due to strong tourism and so, from this point of view, it’s positive.”

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