The escalation of production costs that is spreading across the planet, and now amplified by the increase in oil prices, represents the greatest short-term challenge for the recovery in importing countries like ours. Until now, the debate has focused on the consequences for inflation, with central banks sending reassuring signals to economic actors, while they begin to perceive the costs of the price increase and wonder if the phenomenon is transitory, as monetary experts promise. Efforts will have to be redoubled, because inflation is already at 4% in Spain and is rapidly approaching those levels in the euro area. Also, watch out for one of the derivatives of shock cost: competitiveness. This is a crucial issue, because all the previous inflationary episodes in Spain have turned out to be more virulent than in other countries, causing a sharp deterioration in the competitive position and the external balance.
Fortunately, this does not seem to be the case at the moment. It is true that our productive apparatus suffers: the prices of imported supplies are increasing at a much higher rate than the prices that can be requested from customers (in August, the latest data available, import prices grew at a rate 14% per year, three points more than export prices, mainly due to higher energy prices).
However, the inflation of import prices has not been enough to unbalance the external accounts. The current account surplus is close to 9 billion (with data accumulated between January and July), around half of the record levels prior to the pandemic, despite the burden of tourism that is still depleted.
The export boom is the main explanation for the strong external position. Exports are expanding at a sustained rate, and are already above their pre-crisis values both in value (+ 17.7% in July compared to December 2019) and at constant prices (+ 9.3% ). This is being one of the best records in Europe, clearly beating the German locomotive, France and, above all, a United Kingdom deranged by Brexit. Only Italy improves (slightly) our result. Imports are also increasing, but at a slower pace despite the strong rise in prices of supplies bought abroad. Hence the positive balance.
Another favorable trend is foreign direct investment, with an injection of capital into our productive fabric of 19,400 million between January and July, much higher than the values of 2019. It is possible that the reconfiguration of globalization that is taking place after the pandemic us be favoring. Companies shorten fragmented and supply-dependent value chains from countries far from the main places of consumption.
In this recomposing world puzzle, our economy has some important assets. The production structure is relatively competitive in the face of relocation processes, in key sectors such as chemicals, automobiles and capital goods. It is a fact that these are the ones that are leading sales abroad. Another asset is the imbrication in a European market that tries to reduce its dependence on supplies from Asia. This pendulum movement is taking advantage, as shown by the strong increase in our export quota in the European Union. Finally, the available labor force is abundant and for the moment we are not witnessing a price-wage loop, unlike other European partners that are approaching full employment.
To maintain these attractions, it is crucial to improve the productivity that still weighs down many small companies, as well as to reform the electricity markets and the policies of placing people in unemployment or inactivity. And prevent internal prices from taking the same lift as external costs, as happened in the past with the dire consequences that we already know.
The consumer price index (CPI) increased in September by 4% in Spain compared to a year earlier, according to the leading indicator of the National Institute of Statistics (INE). This is six tenths more than Eurostat’s advance for the euro area as a whole, which points to an unfavorable differential for Spain. The gap is explained above all by the rise in the price of electricity, which is especially intense in our country. Discounting energy and unprocessed food, the core CPI increases at an annual rate of 1%, almost half that of the euro area.
Raymond Torres He is the director of business at Funcas. On Twitter: @RaymondTorres_
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