Portuguese exports threatened by fall in Spain’s demand

PORTUGUESE EXPORTS to Spain are likely to suffer as the Spanish economy shows strong signs to cooling.

Both consumer demand and investment are slowing down in Spain forcing the Bank of Spain to lower its growth predictions for the rest of this year and 2009.

In the Economic Bulletin for March published last week, the Central Bank of Spain predicted that GDP growth rates would fall from 3.8 per cent in 2007 to 2.4 per cent in 2008 and even 2.1 per cent in 2009.

The Spanish Finance Minister, Pedro Solbes, was forced to admit last week that the Bank of Spain’s pessimistic predictions were probably accurate.

For Portugal, which relies so heavily on the Spanish economy being one of its main trading partners, the outlook for economic growth for its larger neighbour is worrying.

Spain is the main destination for Portuguese exports, so the end of a strong market performance in Spain could upset Portugal’s economic recovery.

Spain’s property market is suffering a freefall, unemployment is again rising and investment and consumer spending is likely to brake sharply this year.

The Bank of Spain is predicting that private consumption could fall from 3.2 per cent last year to 1.9 per cent by 2009.

As to investment which rose by six per cent in 2007, this could shrink back to 1.5 per cent this year and 0.4 per cent next year.

During the past five years, Portuguese export companies have been counting on an annual increase in Spanish consumer purchasing of foreign products of around six per cent.

In 2007, Portuguese exports on the Spanish market shot up by 11.7 per cent representing one third of the total increase in Portuguese goods to all foreign countries.

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