Growth in Spain’s Exports Boosts Economy

Growth In Spain’s Exports Boosts Economy

Growth In Spain’s Exports Boosts Economy

While Spain’s domestic demand has flagged over the last few years due to the economic downturn, its exports have become the new growth driver.

In 2013, exports accounted for a record 34.1 per cent of gross domestic product (GDP), according to Eurostat data. Only Holland and Germany topped Spain in the rankings of exporting countries! And the positive trend has continued this year, with exports rising 3.2 per cent in the first quarter, outpacing figures posted by countries like Germany. Ironically, Spain’s success beyond its shores has been supported by a by-product of the economic crisis – increased competitiveness.

A CLOUD WITH A SILVER LINING

External demand has been positive since 2008, after having been negative for the previous 10 years when the engine of economic growth was domestic-based, namely the construction and real estate sectors. But the sharp contraction in domestic consumption forced companies to move away from their home market and start selling their wares overseas.

Spain’s exports have increased 40 per cent since the start of the crisis, with the capital goods, food and automotive industries leading the way. Export growth has been fuelled by productivity gains and restored cost competitiveness. The sharp rise in unemployment has depressed wages in real terms and lowered unit labour costs. The reform of Spain’s labour market has also provided companies with more flexibility to negotiate wages and conditions.

This in turn has attracted renewed foreign investment to exporting industries like the automotive, where the labour market is an estimated 40 per cent less expensive than those of Europe’s other biggest car-making countries. So the cloud of the economic crisis has had its own silver lining!

EXPORTS TO CONTINUE TO DRIVE RECOVERY

Spain emerged from a two-year recession in the second half of 2013 and data firm Markit’s monthly purchasing managers index (PMI) for the service sector has shown that firms are clawing back customers. The index reached 56.5 in April, which was the highest level since before the onset of the financial crisis. Many of these service companies are exporters. While Europe is the recipient of nearly 70 per cent of Spain’s exports, companies are also targeting more far flung destinations such as Brazil and South Africa.

So is the current export boom likely to continue? Well, the government is betting that it will and has drawn up a two-year plan to support the internationalisation of the Spanish economy, including financial incentives for companies. And in the last year alone, the number of exporting companies in Spain have risen by 10 per cent to 150,000. The government’s forecast is for exports to contribute 1 percentage point to GDP growth in 2014.

For information on investing in Spain, contact corporate law firm Argali Abogados.

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