In February 2013, Morgan Stanley produced a report praising Spain’s exporting miracle, drawing parallels between its fast-growing industrial output and that of Europe’s export powerhouse, Germany.
“Spain, where unit labor costs are falling due to recession and reforms, and where export performance is strong, is on its way to become the euro area’s next Germany,” wrote analysts Joachim Fels and Sung Woen Kang in a weekly note on the global economy. It gave rise to a lot of hope and excitement.
Naturally, the main assumption underlying the report’s conclusions – namely that cheaper unit labor costs and greater labor mobility were all that was needed to transform Spain into an export superpower – was tenuous, at best.
“There is more to productivity and competitive position than unit labor costs,” said Moorad Choudhry, a professor at Brunel University. “If there wasn’t, we could observe Bangladesh’s average wage cost of one dollar a day and conclude that it will overtake Germany in the export league table.”
Lo and behold, a year and a half later, a very different picture is forming to that painted by Morgan Stanley. As the latest figures out of Spain’s Ministry of Economy show, the country’s export glut, which began in early 2013, has shriveled to a dribble, increasing by a meager 0.8% over the last 12 months.
And that’s the good news. The bad news is that during the same period imports rose by 5.3% – a sign, according to the Ministry, of the country’s growing internal demand as its economic recovery continues to strengthen. That’s one way of looking at it, in the way of constantly giving contrary data a positive spin; another would be that the latest statistics are confirmation that Spain’s recovery is as “consumer driven” as was its earlier collapse.
During the giddy years of Spain’s housing boom, so rampant was internal demand for foreign-produced stuff that the country somehow racked up the second largest current account deficit in the world, second only to the US – and that’s in absolute, not relative terms.
Thankfully, Spain’s current account deficit is now just a shadow of its former self, clocking in at a trim $10 billion during the first five months of 2014, compared to $154 billion in the year 2008. All the same, the signs are ominous. With more and more people finally succumbing to the government’s carefully spun and media-endorsed propaganda that the economy is back on the mend, discretionary spending in Spain is on the rise – and precious little of it is going on stuff produced in Spain.
In other words, Spain’s short-lived export miracle seems to be well and truly over. Rather than being the new Germany, Spain is back to being… well, just Spain. By Don Quijones.
Also by Don Quijones: Money has no moral compunction, moves with ease from drug traffickers into mega construction projects, and politicians need it for campaigns and other purposes. Read…. ‘Politics and Mafia Are Same Thing’ – Jailed Spanish Politician
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.