The Spanish economy is resisting the onslaught of the global slowdown better than expected. This is one of the main conclusions of the presentation given by the economist Emilio Ontiveros, president of Analistas Financieros Internacionales (AFI) at a recent event on Independent Management held in Madrid.
Global uncertainties
Ontiveros began by referring to the latest indicators that put the level of global growth at 31TP3Q, that of developed economies at 21TP3Q and that of emerging economies at 41TP3Q. This slowdown is therefore confirmed and will affect the US, the Eurozone and China. The accumulation of uncertainties seems to be the detonator with some worrying data such as the surprise fall in world trade volume of -1.3% in September.
The main one is the contraction of industrial investment, which generates stagnation in productivity. Key sectors such as the automobile industry are in crisis. And the cost of capital (interest rates) are at historic lows, which facilitates indebtedness and further reduces investment.
In the case of Europe, it suffers directly from the consequences of the turbulent trade environment, more specifically from China. The demographic factor is not helping either, with steadily declining numbers. And Germany, which is the most open economy in the Eurozone, is not growing, which conditions the rest of the countries. German GDP in the second quarter has fallen -0.21 Q2 Q3Q3.
Spain resists
In contrast to Europe, Spain can better withstand the impending slowdown, because the foreign sector remains the pillar that maintains an average growth rate that is double that of Europe over the last four years.
There are two reasons for this. Firstly, because despite the high balance of payments deficit, Spain has a current account surplus of 2%, i.e. a positive balance of exports of goods and services compared to imports. And secondly, because medium-sized Spanish companies have consolidated their export vocation, increasing diversification both in terms of products and destination countries.
The external sector is therefore a key factor, although not the only one, in explaining our resilience to the uncertainties of the economy. We have a very solid business fabric and household economies, undoubtedly favoured by the very lax financing conditions, which drive the continuous deleveraging (reduction of debt) of households and companies. In 2010, the level of equity of the national economy in the hands of individuals and companies reached 43%; today it is 66%.
A soft Brexit
As for the impact of Brexit on our economy, Ontiveros confirms that we will withstand the UK's exit from Europe better than other countries. In fact, we have already internalised it, so we can rule out the worst-case scenario, a GDP erosion of the -0.6% estimated by analysts.
As we are integrated into the customs union with the rest of the Eurozone countries, Spain will not have to assume excessive tariff costs. And the strength of our exports is particularly evident with the United Kingdom, where we export mainly cars and primary sector products.
On the other hand, tourism has not suffered as a result of Brexit. On the contrary, there has been an increase in income generated by British tourists, income that represents 21% of the total for this sector. And the impact of the depreciation of the pound sterling against the euro is very limited for our income, because the stock of Spanish products in the UK is large and diversified.
The British are still more concerned about issues such as the upcoming elections than about Brexit. And Spain continues to be one of their favourite destinations to travel, to live or to invest. 385,000 Britons live in Spain and requests for residency continue to rise; furthermore, 24% of British investment in Spain is direct investment. This trend will not change, as recent surveys indicate that 63% of British companies continue to favour the Spanish economy as a destination for their investments.
Optimistic perspectives and threats
In conclusion, Spain has competitive advantages that favour our economy over others when it comes to assimilating the slowdown as it falls. Advantages such as the quality of its companies, the greater volume of foreign direct investment and the reduction in risk premiums. And in Spain there are no political parties that are clearly committed to breaching the Eurozone's Stability and Growth Pact, as is the case in other countries. Finally, there are no recession forecasts for any of the world's major economies.
But, as Ontiveros says, does this mean that the uncertainties have disappeared? Not at all, because there are still worrying symptoms. The first is financial vulnerability, which for the moment worries funds more than banks. The financing conditions have opened the way for other companies, such as technology companies, to embark on lending activities, generating new risks for the economy.
Secondly, the high level of public debt in emerging economies, affected by low growth and the dollarisation of their debt. Both factors complicate the ability of these countries to deal with their debt, which is key to returning to growth.
Javier Ferrer
Director of the Financial Communication Department of Proa Comunicación