Financial Times: Spain’s exporters drive robust economic recovery
The Plasper factory in the northern Spanish town of La Roca del Vallès is in full swing, melting giant vats of plastic for industrial materials at a rate of 50,000 tonnes a year, employing more than 75 people from the local area.
The company is part of a wave of medium-sized manufacturing companies in Spain that are driving not just robust economic growth but also a fundamental rebalancing of the country’s economy. “We used to produce just a few thousand tonnes a year,” says Lluis Perez, the owner of Plasper. “Today it’s all so different.”
Thanks in part to companies such as Plasper, the Spanish economy is on a roll. It has grown at above 3 per cent for the past three years, well above the eurozone average. The International Monetary Fund has raised 2018 growth forecasts from 2.4 per cent to 2.8 per cent, outstripping France, Germany and Italy.
Over the past few months, rating agencies Moody’s, Standard and Poor’s and Fitch have all upgraded Spain’s sovereign debt ratings. Spanish sovereign borrowing costs have fallen sharply over the past six months and unemployment is down from 26 per cent in 2013 to 16 per cent today. “We are going through the greatest economic period in Spanish history,” says Alberto Nadal, the secretary of state for budgets for the ruling centre-right Popular party government.
The growth itself is partly cyclical, as the economy bounces back from a very low base after a tough financial crisis. Unemployment is still twice the eurozone average and the total size of the economy is not much above 2007. But economists, business leaders and politicians say the really positive development in the Spanish economy is not the rate of growth, but the fact that the growth is now far more export driven.
In the early 2000s the Spanish economy was also booming, but it was on the back of debt-fuelled domestic demand, an overheated and uncompetitive construction sector and a severe housing bubble. The trade deficit reached more than €100bn. Now exports make up a third of national output, compared to a quarter before the crisis, and there was a €22bn current account surplus in 2017. The domestic construction sector has shrunk rapidly, replaced by manufacturing and other high-skilled industries.
“The Spanish economy is seeing robust growth, but also more resilient growth,” says Daniel Lacalle, chief economist at fund manager Tressis.
Moody’s, on issuing their ratings upgrade last month, said: “It has become increasingly clear that structural changes in the economy have changed the growth model to one that is broader-based and more sustainable than in past recoveries.”
Mr Nadal, speaking about the rise in the number of export driven manufacturing companies, puts it a different way: “Our economy is becoming more German.”
Economists and businesses say Spain’s deep economic crisis from 2008 itself laid the foundations for the improving business climate.
First, the economic crisis led to a fall in wages, while at the same time labour market reforms by the PP government made the jobs market even more business friendly.
“Wage adjustment has caused us and other Spanish companies to increase competitiveness and efficiency,” said Rafael Vázquez, vice-president of production at Conesa, an industrial tomato processing plant in Extremadura, in the south west of the country. Lower wages helped them to expand sales threefold to €200m over the past three years.
The second factor, say businesses, was that the financial crisis forced them to embrace foreign expansion owing to the collapse of the domestic market. “We started putting far more efforts into foreign expansion, because we had to, but that is now really paying off,” says Mr Perez. Third, there has been a rise in absolute productivity since the financial crisis, in part because some of the least efficient Spanish companies went bust during the crisis. Share this graphi
The situation for the Spanish economy and Spanish manufacturing is not all rosy, however.
Many of the concerns among economists are political. Spain has been operating with a minority government since 2015, which has been unable to undertake significant structural reforms, potentially dampening prospects for future growth.
Rudolf Alvise Lennkh, an analyst at European rating agency Scope, said: “The risk is that going forward, despite the economy remaining on a robust trajectory, the trend is likely to be less dynamic.”
At the same time, the push for independence in the northern region of Catalonia — where Plasper is based — is a worry. In its rating upgrade, Fitch said that while the economic impact had been “limited”, the Catalan government’s declaration of independence in October heightened political risks for the country in the long term.
There are also some signs of a slowdown in European economic growth. But a bullish Mr Perez says that even a slower European economy will not stop Plasper, as their markets are increasingly in the US and Latin America. “We have grown sales 900 per cent since 2010 . . . the way things are going, I think we can continue this way.”