The Spanish economy is weathering the onslaught of global slowdown better than expected. This is one of economist Emilio Ontiveros's presentation at a recent event on Independent Management held in Madrid. Ontiveros is also the president of Analistas Financieros Internacionales (AFI).
Global Uncertainty
Ontiveros began by alluding to the latest indicators that put global growth at 3%, developed economies at 2% and emerging economies at 4%. This deceleration will affect the US, the Eurozone and China. The accumulation of uncertainties seems to be triggering this deceleration with some worrying data such as the surprising drop of -1.3% in the volume of world trade in September.
The main issue is the reduction of industrial investment, which generates stagnant productivity. There are key sectors such as the automobile sector, which is in crisis. Additionally, capital costs (interest rates) are at historic lows, which facilitates borrowing and further reduces investment.
In the case of Europe, it is directly suffering the consequences of the turbulent business environment, more specifically China. The demographic factor does not help either, with constant decreasing figures. And Germany, which is the most open Eurozone economy, is not growing. This market conditions the rest of the countries. German GDP fell in the second quarter -0.2%.
Spain Resists
In contrast to Europe, Spain is better able to withstand the impending slowdown. Its external sector continues to be the pillar that maintains an average growth, double that of Europe, in the last four fiscal years.
There are two reasons for this. The first is because, despite the high balance of payments deficit, Spain has a current surplus of 2%, i.e. a positive balance of exports of goods and services over imports. And secondly, because medium-sized Spanish companies have consolidated their export potential, it has led to increased diversification both in products and in destination countries.
Due to this factor, the external sector is key, although not the only element, which explains our resistance to the uncertainties of the economy. We have a very solid business fabric and family economies, undoubtedly favoured by the very lax financing conditions that drive the continuous deleveraging (debt reduction) of families and companies. In 2010, the national economy's level of owned resources in hands of individuals and companies reached 43%; today it is 66%.
A Slightly Hard Brexit
As for the impact of Brexit on our economy, Ontiveros confirms that we will resist UK's exit from Europe better than other countries. In fact, we have already internalized it, so the worst-case scenario, a GDP erosion of -0.6% as estimated by analysts, can be ruled out.
Because we are integrated into the Customs Union with the rest of the Eurozone countries, we are not going to assume excessive tariff costs in Spain. And the strength of our exports is especially evident in the United Kingdom, where we export mainly cars and commodities sector products.
However, tourism has not resented Brexit. On the contrary, there has been an increase in income generated by British tourists, an income that represents 21% of this sector. And the impact of the GBP's depreciation against the Euro is very limited for our income, because the stock of Spanish products in the United Kingdom is large and diversified.
The British continue to be more concerned about issues such as the upcoming elections than about Brexit. And Spain continues to be one of their favourite destinations for travelling, living or investing. 385,000 English people live in Spain and the number of applications for residency continues to rise; in addition, 24% of British investments in Spain are direct investments. This trend will not change, as recent studies indicate that 63% of British companies continue to bet on the Spanish economy as a destination for their investments.
An Optimistic Outlook and Possible Threats
In conclusion, Spain has competitive advantages that favour our economy over others when it comes to adjusting to the slowdown when it occurs. Spain has advantages such as the quality of its companies, the greater volume of foreign direct investment or the reduction in risk premiums. And in Spain there are no political parties that are clearly committed to violating the Stability and Growth Pact of the EuroZone, something that is happening 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 uncertainty has disappeared? Not at all, because there are still disturbing side effects. The first is financial vulnerability, which at the moment worries financial funds more than banks. Financing conditions have opened bans on other companies, such as technology companies, launching credit activities, and generating new risks for the economy.
And, secondly, the high level of public debt in emerging economies, affected by low growth and the dollarization of their debt. Both factors complicate the ability of these countries to cope with their liabilities, which is key to returning to the path of growth.
Javier Ferrer
Director of Financial Communication at Proa Comunicación