Spain's distressed domestic economy continues to be aided by a very powerful export surge which reached €20.9 bln in May, the second highest month on record and the highest for any May. This represents a 7.3% increase on May 2012 activity, which was itself a seasonal record, and the trailing 12 month ma has now reached a new high of €19.12, which compares to a prior cycle peak of just under €16 bln (see chart).

As well as generating corporate earnings and aiding employment this strong export performance has dramatically reduced Spain's long standing trade deficit. May saw a Trade Balance of a mere -€27.5 mln, the second best reading since the data starts in 1991. This took the 12 month ma up to -€1.71 bln, the smallest deficit since October 1998, and this compares with the pre-crisis levels of almost -€8.7 bln. Given Spain's difficulty in retaining bank deposits this massive reduction in the capital negative flows connected to trade has been of significant help in recent months, and if Spain is able to actually move into trade surplus in the months ahead (as Italy has already managed to do) then the positive flows from trade would start to aid the build up of domestic liquidity levels.