Turbo-charged exports won’t drive Spain out of the crisis
There is a growing chorus of voices claiming that Spain’s exports are pushing the country out of economic trouble; but the reality suggests that much more than a healthy trade balance is needed.
By Gonzalo Toca
Spain’s exports share of GDP has jumped from just 23 percent at the outset of 2009 to close to 35 percent in 2013. In March, the country registered its first trade surplus since records began in 1971, becoming the only European Union member whose sales abroad increased during the first quarter.
This has unleashed a wave of optimism among foreign media, analysts and the government. “Spain’s Crisis Fades as Exports Transform Country”, was the headline of a recent Bloomberg news story. Daniele Antonucci, senior European economist at Morgan Stanley, told CNBC in April that Spanish economic growth will come from outbound sales, a point of view Luis de Guindos, Spain’s minister of economy and competitiveness, apparently shares.
However, the reality on the ground seems grimmer, because none of Spain’s leading exporting regions have been able to cap their own rapidly soaring unemployment from October to March, the last recorded semester. Their difficulty in fostering prosperity in their own neighbourhoods raises doubts over their ability to pull the rest of the country out of the deepest recession in decades.
According to the state-affiliated Foreign Trade Institute, commodities and industrial goods and equipment represent roughly 70 percent of all Spanish exports. They are mainly produced in Barcelona, Biscay, Gipuzkoa, Madrid, Navarre and Zaragoza.
National Statistics Office data shows that, despite the powerful boost in foreign sales, all these highly industrialized regions destroyed jobs between the last quarter of 2012 and the first quarter of 2013. Their rapidly escalating exports were unable to drive a swift economic recovery in their own geographical areas, although more recent indicators suggest that some of them could reduce unemployment in the second quarter.
As well as industrial goods and equipment, Spain also sells abroad foodstuffs totalling 13 percent of overall exports, from the likes of Andalusia, Extremadura and Castilla-La Mancha. These regions, with an average unemployment of 32 percent, kept on laying off workers all the way through to March.
Big sales, little money
More and more Spaniards are starting to ask themselves why relatively strong foreign sales are not translating into economic growth or bringing the unemployment rate under control. The answer is that increases in exports are being overshadowed by a crumbling domestic demand. Consumption is falling prey to heavily indebted households and businesses, and to value added and payroll tax hikes imposed by Brussels in order to tame a 10.6-percent budget deficit. In less than a year, the financial system has needed a credit line of up to €100 billion from the European rescue fund (EFSM) and further support from the ECB in order to avoid the insolvency of Bankia, Spain’s fourth-largest bank, as well as other smaller entities.
Moreover, it seems less than clear that the powerful boost in foreign sales will be sustainable in the long run with Germany and France, the main export markets, enduring sluggish growth figures. Add to this the fact that the credit flow remains so dry for small and medium enterprises that Spain has asked Brussels to channel billions in subsidized loans to local companies through the European Investment Bank. The relatively weak English skills of Spaniards could also limit foreign trade growth potential.
Even increasing outbound sales with the help of foreign direct investment appears hard to attain. Large Spanish fashion companies such as Mango and Zara have started to relocate factories from China, due to a sharp increase in wages, but they are not considering a return to Spain, because the country lacks industrial installations and manufacturing professionals.
The textile sector employed around 400,000 workers in the nineties, but after the flight of most producers to Asia and North Africa there only remain 166,000 on its payroll. This decay illustrates the tendency of the rest of Spanish industry: between 1970 and 2009, its share of GDP plunged from 34 percent to 15 percent. Without what Ángel Asensio, president of the Spanish Textile Companies Federation, called this “massive devastation”, the country could be creating hundreds of thousands of jobs exactly when they are most needed.
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