The intensity of the deceleration phase that the Spanish economy is going through depends on the evolution of external markets, which are very affected by the accumulation of commercial and geopolitical risks, but also on our internal resistance capacity. And this brings us some surprises.
Exports are barely progressing, in line with what was expected given the European break and "market accidents" such as the collapse of Thomas Cook, which in 2018 brought more than 3.6 million travelers to our country. In addition, everything points to a landing of China's economy less smooth than anticipated. Beijing is cautious in its policy of stimuli, to moderate debt, contain the emerging real estate credit bubble and not jeopardize financial stability. A room for maneuver is also reserved, in case tensions with the Trump Administration intensify. The result is less than expected growth, perhaps below 6% in 2020, which takes away the possibility of a recovery in international trade.
The unusual thing is the stagnation of imports. Until July, the value of purchases of goods and services produced abroad increased by a very poor 0.4%. This is four times less than expected, considering that imports tend to grow at a faster rate than demand, and that this increases by around 1.5% per year. This means that Spanish companies are gaining share in their own market. The favorable positioning in terms of labor costs, as well as a certain diversification of the productive fabric are not alien to this good result.
The fragmentation of the internal market, the result of the emergence of regulatory frameworks that differ between autonomous communities and multiply without much economic rationality, could also affect the positioning of foreign companies. According to an analysis of the Bank of Spain, the autonomous communities issued in 2018 about 8,400 standards (this is 70% of total regulatory production), against 6,000 in 2000 - something that could explain the weak productivity growth.
At the moment, and as a consequence of the above, the foreign sector is contributing activity, compensating for the exhaustion of some of the main components of domestic demand. Among them, the strong deceleration of residential investment stands out, which is progressing at an annual rate of less than 2%, less than half of the expected. Thus, neither low interest rates nor strong social housing demand have managed to maintain the vigor of the investment. The global uncertainties and the lower influx of foreign investment could have weighed more, while announcing the end of the upward cycle in the housing market.
Conversely, household consumption seems to resist. The consumer confidence index maintains its firmness and the main sales indicator even points to a slight acceleration. The increase in wages around 2%, a pace still slightly lower than that registered in other European countries, could explain this trend. Likewise, investment in capital goods seems to have been decoupled from export anemia, thanks to the high profitability of the companies, backed by the latest data from the Central de Balances. The equipment effort could continue to grow at relatively high rates - although in decline compared to previous years - staying at levels above 10% of GDP for the fourth consecutive year.
In sum, some positive factors partially compensate for a darkened picture due to the deterioration of the global context and an approaching cycle end. But the slowdown continues and let's not forget that, since the end of the 80s, it has never been possible to create employment with growth rates below 2%. A guideline that, with reforms and a commitment to quality employment, does not have to be repeated.
Raymond Torres is the director of Coyuntura in Funcas. On Twitter: @RaymondTorres
Following the last statistical review, the external surplus, one of the main guarantees of the sustainability of the expansion, is greater than initially estimated. In the second quarter, financing capacity exceeded 27,000 million euros (cumulative data for four quarters). This is 2.2% of GDP, two tenths less than in 2018. External debt (net international investment position), is still slightly below 80% of GDP, or 63% discounting the Bank's position. Spain before the Eurosystem.
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