TRADE BALANCE: DEFICIT, SPAIN, MEXICO, COLOMBIA, ARGENTINA - ECONOMY - 2025

The trade balance is the monetary difference between the total value of exports and imports of a nation during a given period, without taking into account all financial transfers, investments and other financial components.

This balance is then equal to the difference between a country's production and its internal demand. That is, the difference between the goods that a country produces to sell to other countries and the amount of goods it buys abroad.

Source: pixabay.com

It does not include money reused to buy securities abroad. Nor does it take into account the import of materials to produce for the domestic market.

It is part of a country's current account, which includes other transactions, such as income from the net international investment position and international aid. In turn, it is a component of the balance of payments

If the current account is in surplus, the country's net international asset position increases correspondingly. Likewise, a deficit reduces the net position of international assets.

Discrepancies

The term trade balance can be misleading, because it measures the trade flow of exports and imports during a given period of time, rather than a balance of exports and imports at a given time.

Furthermore, trade balance does not mean that exports and imports are "in equilibrium" with each other or with something else. Measuring the trade balance can be problematic due to problems with records and data collection.

For example, when adding the official data of all the countries of the world, exports exceed imports by almost 1%, showing that the world has a positive trade balance with itself.

This is not true, because all transactions imply an equal credit or debit in the account of each nation. The discrepancy can be explained by transactions designed to launder money or evade taxes, smuggling and other problems.

What is the deficit and surplus of the trade balance?

If a country has exports with a value greater than its imports, it will have a positive balance or a trade surplus. On the contrary, if the country's imports are worth more than its exports, it will have a negative balance or a trade deficit.

For example, if the United States imported $ 1 trillion in goods and services in one year, but exported only $ 750 billion in goods and services to other countries, then the United States had a negative trade balance of $ 250 billion, or a trade deficit of $ 250. billion.

About 60 of the 200 countries in the world have a trade surplus. However, the idea that bilateral trade deficits are bad in themselves is rejected by trade experts and economists.

The debit items on the balance include imports, domestic spending abroad, and domestic investment abroad.

Credit items include exports, foreign spending in the domestic economy, and foreign investment in the domestic economy.

By subtracting credit items from debit items, economists arrive at a trade deficit or surplus for a given country, over a period of a month, quarter, or year.

Economic indicator

The trade balance is used to help analysts and economists understand the strength of a country's economy relative to that of other countries.

A country with a large trade deficit is essentially borrowing money to buy goods and services, and a country with a large trade surplus is essentially lending money to deficit countries.

In certain cases, the trade balance has a correlation with the political stability of the country, since it is an index of the level of foreign investment found there.

A trade surplus or deficit is not always a viable indicator of the health of an economy. It should be considered in the context of the business cycle and other economic indicators.

For example, in a recession, countries prefer to export more to create jobs and demand in the economy. In times of economic expansion, countries prefer to import more to promote price competition, which limits inflation.

Trade balance in Mexico

In recent years, Mexico has maintained a deficit in its trade balance, increasing it as of 2015. The average deficit in the last five years is US $ 8.6 billion, but in the last two years it has been of US $ 12.1 billion.

Merchandise trade posted a deficit of US $ 2.9 billion in October 2018, above the deficit of US $ 2.3 billion registered in the same month the previous year.

In addition, the result was considerably higher than the deficit of just US $ 0.2 billion that had been recorded in September. Export growth on an annual basis accelerated to 12.6%, driven by strong gains in manufacturing products.

Meanwhile, import growth rose to 13.7% year-on-year, in strong imports of consumer goods and intermediate products. Therefore, the 12-month trade deficit widened to US $ 12.8 billion for October 2018, from US $ 12.1 billion registered in September.

Forecast

Specialists surveyed for the LatinFocus report expect exports to reach US $ 472 billion in 2019. This would represent an annual expansion of 6.3%. Meanwhile, imports are expected to grow 6.6% and reach US $ 486 billion.

Trade balance in Colombia

Since 2014, Colombia has maintained a deficit in its trade balance. However, after reaching the largest deficit in 2015, it has been declining in the past two years.

The average deficit in the last five years is US $ 7.4 billion. In the last two years it has been US $ 8.7 billion.

According to the National Department of Administrative Statistics, exports accelerated markedly in October 2018. Export growth soared to 15.8% in the month, compared to 3.8% in September.

The notable rebound was benefited by a double-digit increase in exports of fuels and products of the extractive industries. Manufacturing exports also increased, but modestly.

On the other hand, exports of agricultural products, food and beverages contracted in October.

In September 2018, the last month for which data are available, imports slowed somewhat. Import growth moderated to 8.7% year-on-year, compared to 9.4% in August.

Responsible for the moderation in September was a noticeably weaker pace of expansion in imports of agricultural products, food and beverages.

Forecast

Panelists participating in the LatinFocus project project that exports will grow 6.0% in 2019.

Trade balance in Spain

In recent years, Spain has maintained a deficit of more than US $ 20 billion in its trade balance. The average deficit in the last five years is US $ 26 billion. In the last two years it has been US $ 24.5 billion.

The economy has maintained momentum in the fourth quarter of 2018, following the strong demonstration of the third quarter. This was driven by a rebound in consumer spending.

A strong rebound in retail sales and a notable acceleration in tourist arrivals in October indicate healthy consumption.

However, the negative consumer sentiment in the first two months of the quarter calls for caution. Meanwhile, a slight rebound in industrial production in October points to tepid growth in the manufacturing sector.

On the political front, the European Commission expressed concern about the planned increase in government spending and skepticism about the feasibility of current budget targets at the end of November.

Trade balance in Peru

In the last two years, Peru has maintained a surplus in its trade balance, after running a deficit in the previous two years. The average surplus in the last five years is US $ 0.8 billion. In the last two years it has been US $ 4.1 billion.

The trade balance registered a deficit of US $ 155 million in October 2018, ranging from a surplus of US $ 521 million in September and the surplus of US $ 368 million registered in October of the previous year. This represents the worst result in almost two and a half years.

Exports decreased 2.8% year-on-year in October, following a sharp 11.3% drop in September. The October drop was due to declines in exports of gold, copper, zinc and petroleum-based fuels.

Imports rose a solid 11.4% year-on-year in October, due to growing purchases of fuels, lubricants and construction materials, well above the 1.7% in September.

In the 12 months leading up to October, the trade surplus was US $ 6.8 billion, down from US $ 7.3 billion in September, the lowest reading in 8 months.

Forecast

The panelists participating in the LatinFocus forecast see a 5.1% growth in exports in 2019. The trade balance will register a surplus of US $ 5.0 billion.

Trade balance in Argentina

In the last five years Argentina has had an oscillating trade balance. A maximum surplus in 2014 of US $ 3.2 billion and a maximum deficit in 2017 of US $ 8.5 billion. However, by November 2018 it already has a surplus of US $ 1 billion again.

Due to the deficit presented in 2017, the average in the last five years is a deficit of US $ 0.9 billion, and in the last two years of US $ 3.2 billion.

Exports increased 14.5% in November in year-on-year terms, after increasing 1.4% in October.

The November increase reflected a strong increase in fuel and energy exports, as well as a healthy expansion in foreign sales of manufactured products of agricultural and industrial origin.

Imports fell 29.2% annually in November, a steeper drop than the 18.2% contraction in October. The contraction in November is explained by a reduction in imports of capital and consumer goods, as well as motor vehicles.

November saw the third consecutive surplus after 20 months in the red and the best result since June 2014.

Forecast

The panelists participating in the LatinFocus forecast expect that in 2019 exports will increase 12.0% and that imports will decrease 4.8%. This will bring the trade balance to a surplus of US $ 5.3 billion.

Trade balance in China

China produces and exports many of the world's consumer goods, running a trade surplus since 1995. The average surplus in the last five years is US $ 433 billion. In the last two years it has been US $ 464.5 billion.

Exports increased 12.3% annually in November, outpacing the 6.9% increase in October. The healthy print for November indicates that global growth remains strong, which is driving up demand for Chinese products.

Meanwhile, imports rose 17.7% annually in November, exceeding the 17.4% expansion in October. This suggests that domestic demand is in good shape, auguring well for overall growth in the fourth quarter.

The 12-month rolling sum of the trade surplus fell from $ 425 billion in October to $ 421 billion in November. This has been the lowest value since January 2015.

Exports will expand 4.5% in 2018, bringing the trade surplus to US $ 470 billion. In 2019, exports will increase by 3.7%, raising the trade surplus to US $ 492 billion.

Trade balance in Germany

Germany has posted a fairly uniform trade surplus in recent years. The average surplus in the last five years is US $ 294.8 billion. In the last two years it has been US $ 297.5 billion.

October 2018 trade data provided some relief amid questions about the state of the German economy. Exports went from a month-on-month contraction of 0.4% in September to an expansion of 0.7% in October.

Compared with the same month of the previous year, exports recovered strongly. After a 1.0% contraction in September, they expanded by 8.5% in October.

As a result, the 12-month moving sum of exports increased 4.4% in October, compared to 4.2% in September. Meanwhile, import growth accelerated to 11.3% in October, from 5.6% in September.

The 12-month rolling sum of imports increased 6.5% in October, from 6.2% in September.

October trade data shows that there is still a long way to go before the traditional growth engine is back in full swing.

References

1. Wikipedia, the free encyclopedia (2018). Balance of trade. Taken from: en.wikipedia.org.
2. Investing Answers (2018). Trade Balance. Taken from: investinganswers.com.
3. Will Kenton (2018). Balance Of Trade - BOT. Taken from: investopedia.com.
4. Focus Economics (2018). Trade Balance in Mexico. Taken from: focus-economics.com.
5. Focus Economics (2018). Trade Balance in Colombia. Taken from: focus-economics.com.
6. Focus Economics (2018). Trade Balance in Spain. Taken from: focus-economics.com.
7. Focus Economics (2018). Trade Balance in Peru. Taken from: focus-economics.com.
8. Focus Economics (2018). Trade Balance in Argentina. Taken from: focus-economics.com.
9. Focus Economics (2018). Trade Balance in China. Taken from: focus-economics.com.
10. Focus Economics (2018). Trade Balance in Germany. Taken from: focus-economics.com.