This post in pdf format: Spain – On the Road to Growth
Spanish GDP grew by 0.1 % in the third quarter (0.4 % at annual rate) according to the Bank of Spain advanced estimate. This is the first bounce, even modest, of the Spanish economy after eight quarters of contraction in its economic activity. Over a year, however this latter continues to shrink at the rate of -1.2 %. The carryover growth is -1.3 % for 2013 to the end of the third quarter (average growth for 2013 if the GDP level remains at Q3 level in Q4).
Spanish economic profile remains fragile. The second graph shows a rupture since 2008 and the difference with the pre-crisis trend is impressive. The third quarter figure just implies GDP stabilization at a low-level but it’s an important first step.
The details published by the Bank of Spain shows that domestic demand continues to contract even though it is now a smaller pace than in 2012. Throughout 2012, on average, internal demand dropped by -4.1 %. The decline in the third quarter was -1.2 % (annualized) as in the previous three months.
The acceleration comes from outside. External trade has had a long and positive contribution to GDP growth, reflecting a rapid acceleration of Spanish exports.
The third graph is a comparison of exports in major countries of the Euro zone. It shows nominal exports based at 100 in the first half of 2008. In August 2013 Spanish exports, since this period, have increased by nearly 25%, it’s nearly 10 % in Germany, while those of France and Italy increased respectively by 1.2 % and 2.8 %.
The acceleration of Spanish exports is significant since 2012 and reflects a renewed trade momentum with Latin America while the weight of trade with the Eurozone dropped dramatically. The fourth graph shows the recent acceleration to South America. The increase since 2008 is 90 %.
However, the weight of exports to this region is limited (6.3 % of Spanish exports in 2013), but it is compensated by the recent rapid growth. In contrast to those Eurozone which represent only 48 % in 2013 against nearly 56 % in 2008. Spain seeks impulses outside of the Euro zone.
In other words, the internal market must continue to adjust as it is still suffering direct and indirect effects of the 2007 collapse in real estate. To find a more rugged profile, Spain has to improve its capacity to benefit from external impulses. This is the strategy, Spain, is currently implementing.
For this it seeks to improve its price competitiveness trying to reduce Unit Labor Costs. This is what we see in the last graph. I included the ULC adjusted for inflation and we see the rapid speed of the Spanish adjustment. This contrasts with France and Italy, whose export performance does not compare.
The clear objective is to capture the external impulses, turning them in production and employment in order to gradually restore consistency to domestic demand. These elements must be relayed by a rapid recovery of productive investment to improve the medium-term outlook. The Spanish bet now has a more beautiful look. Moreover the labor market is beginning to have more promising prospects and this is what is, at the end, really important.