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Spanish exports losing competitiveness

  In recent times, the trade deficit has become the most troubling imbalance in Spain’s economy. It is not without reason. In the early months of 2005 it went above 7% of the GDP, thus in percentage terms exceeding that of the United States which has caused so much comment in the press. This may be due to the fact that we are importing a lot and probably saving very little or that we are exporting little, possibly because we are not competitive. Strong domestic demand is driving the rash of imports while exports are failing to compensate for the gap created by purchases abroad.

  The point is that Spain has a serious and growing problem of competitiveness in world terms. Since 1998, in terms of unit labour costs in the manufacturing sector, Spain’s main customers have lowered the cost of their products by 8.1% compared with Spanish costs. Before the adoption of the euro, this loss of competitiveness could be supplemented through currency devaluations but this in no longer possible. Spain’s competitiveness in terms of Portugal and Italy has been maintained but with regard to Germany it has dropped by 11.5% and against France (where 19.4% of the country’s exports go) it has slipped by a dramatic 17.4%. The worsening situation is especially significant in terms of one new EU member state, namely Poland, which has cut its costs by 38.4% in terms of Spanish costs.

  With this drop in competitiveness, it is not surprising that Spain has stopped making gains in its share of international trade. At least, however, the country has managed to not lose ground which, given the circumstances, is of some merit. Spain’s exports in nominal terms have maintained their share of the world total, a share which had been increasing continually from 1.3% in 1985 and 1.7% in 1994 to 2.0% at the end of 1998, the date when the euro came into use. From that time on there was a decline which ended up with a drop to 1.7% at the beginning of 2001, followed by a strong recovery since then, in spite of ups and downs over the past years which have put it at 1.9%. In this respect, Spain contrasts favourably with countries like France, United Kingdom, United States and even Japan. All of those countries saw their share of nominal world exports drop appreciably. Among the large countries, only China shows a better export balance. Things are not so bad.

  In terms of market penetration by geographical area, the result is identical. The share of Spanish exports in total imports of the euro area went from 4.1% from 1994 to 4.5% in 2004. In areas of growing importance, such as between the new member states of the European Union, including Poland, Spain went from 1.1% to 1.8% and, among the rest of Eastern Europe, from 0.9% to 1.9%. This good situation is not restricted to Europe. Market share is increasing in Africa and Oceania and is holding up in Latin America and Asia, excluding the Far East. In two key areas, such as the Far East and the United States, which are engines of the world economy, the decrease in recent years has switched to an advance, especially in the case of China where, since the beginning of the year, Spain’s exports have doubled their share of total imports. It may be assumed that, in areas of major growth, Spain’s share would be lower but, if this bias were so marked and such a determinant, its share of world exports would drop, something which is not happening.

  Also having an effect on these events, and to a considerable extent, has been the trend in exchange rates. The sharp devaluations of the peseta in the Nineties raised Spain’s foreign competitiveness, a situation which was consolidated by the move into the euro. At the beginning of 1999, Spain was a cheap country compared with its partners in the Monetary Union and in terms of its main trading partners. This represented a considerable boost for Spain’s exports, giving them an extension of time which has served to mask the problem of competitiveness and has delayed the consequences.

  These consequences are now beginning to be felt. In spite of a generally favourable trend, Spain’s exports are showing some dark spots. Exports by such relevant sectors as furniture, textiles, toys, footwear and motor vehicles are dropping or are stagnant. What is happening in imports is even worse. The penetration of foreign products in the Spanish market is making the country’s lack of competitiveness even more evident. What is troubling is that at this time Spain’s economy is not greatly specialized in high value added and growth sectors but quite the opposite. The exchange rate gave Spain a breathing space but the challenge now lies in taking advantage of this in order to improve our competitiveness before it is too late.

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