The price gap with the main euro economies widens and tests the strength of exports, key to recovery
The energy crisis aggravated by the war in Ukraine has led to an inflationary spiral that is already hitting consumers and companies on a global scale. In Spain, the CPI stood at 9.8% in March, the highest since 1985. And it has already reached double digits in nine autonomous communities. Thus, the gap with the large economies of the euro zone widens, where the average stands at 7.5%.
It was in April 2021 when inflation in Spain surpassed that of the Monetary Union (2% compared to 1.6%) and, since then, the difference has been maintained month by month. A situation that puts the competitiveness of Spanish exports to the test via prices, a component of the Gross Domestic Product (GDP) that was key to getting out of the 2008 financial crisis and in which the Government has placed all its trust, together with consumption and investment, to maintain growth.
Spain is a world exporting power. Even after the hard blow of the pandemic. Specifically, exports reached a new record in 2021 with 316,609 million euros, 21% more than in 2020. And the number of regular exporters (those who have sold abroad in the last 4 consecutive years) increased by more than 4,000 up to 59,193, according to ICEX data. But the growing difference in prices with the euro zone seriously threatens these figures, as our goods and services become more expensive compared to the partners of the common currency.
The complex scenario is already beginning to be palpable in some indicators such as the order portfolios of the manufacturing industry, which in March registered their first drop since January 2021, according to the purchasing managers’ index PMI published by S&P Global. In fact, although it remains in expansion territory (above 50), the drop in new orders was the strongest since May 2020.
“Our underlying inflation -3.4% in March- is also somewhat higher than the European average, which results in a loss of competitiveness for the economy,” adds Raymond Torres, director of the Funcas situation.
The symptoms of this weakness have accelerated in 2022, but the first outbreaks were already seen in the last quarter of 2021, as reflected in the competitiveness trend indices (ITCs) prepared by the Ministry of Industry. Compared to the countries of the European Union, this indicator grew (if it rises, it implies a loss of competitiveness) by 0.7% year-on-year in the fourth quarter of 2021.
“This loss of competitiveness was the result of the 0.7% year-on-year increase in the relative consumer price index,” they explain from the ministry. And compared to the euro zone, it rose 0.9% for the third consecutive quarter, “because the variation in average prices of the countries of the region was lower than that registered in Spain,” the document adds.
The concern is maximum among national exporting companies, which must also deal with the increase in costs due to the rise in energy. “Despite the fact that companies are making an effort to leave Spain and have shown that they can do so, we are concerned that the competitive position will deteriorate due to higher inflation than our competitors, mainly due to the rise in taxes on contributions to Social Security, the rise in salaries and energy costs, ”says Antonio Bonet, president of the Exporters Club, in a recent analysis of the situation.
Adjustment via margins
Raymond Torres recalls that competitiveness depends on two key factors: the evolution of their wage and non-wage costs. “Wage costs evolve moderately, in line with those of neighboring countries and, therefore, competitiveness is not lost in this way,” says the expert from Funcas. However, non-wage, and in particular energy, tend to increase with particular intensity. Something that “forces sales prices to rise in relation to competing companies or to compress margins in order to maintain export markets,” he explains.
At the moment, Spanish exporters seem to be opting for an adjustment via margins, which is why the good figures for foreign trade have managed to maintain these months. “But this is only sustainable for a certain time, since in the long run it jeopardizes the viability of the business,” experts warn.
At this point, they are confident that, at least for the time being, companies can comfortably weather the blow of energy costs to their profitability. But they insist that this situation cannot last indefinitely, without taking into account that wages could react as a second-round effect. “Hence the importance of closing the inflation gap as soon as possible,” warns Torres.
15,000 national companies with sales to Russia and Ukraine, pending the war
The outbreak of the war in Ukraine has aggravated the problems in the supply chain that had been going on for months. However, Spanish companies are holding up well to the pull of the conflict by having limited exposure to Russia, a country on which strong sanctions have been applied that have caused the exit of large national companies based in the region.
According to data from the Exporters and Investors Club, more than 15,000 Spanish companies carry out operations in Ukraine, Russia and Belarus, with a volume of annual imports and exports with Russia and Ukraine of more than 10,000 million euros.
Data from the Ministry of Industry indicate that, if only foreign sales are taken into account, exports to Russia barely represent 0.7% of total merchandise exports. And 1.8% of imports.
In the case of Ukraine, the percentages are 0.2% and 0.5%, respectively. Despite this limited figure, the technicians of the Tax Authority (Airef) warn that “one of the channels through which the effects of the war flow is commercial.” And it is that although Spain’s direct exposure to the affected countries is relatively small, “a large part of the effects could come indirectly through the exposure to these economies of our main trading partners and, in particular, of Germany,” they insist. from the institution.
In a recent report, Airef carries out a theoretical exercise to calculate the impact linked to the disappearance of trade flows of goods and services with the Russian economy. And this would amount to 0.4 percentage points of Spain’s GDP, “practically half of what is estimated for Germany”, where the impact would be 0.8 points.
In this scenario, the experts indicate that we should be concerned about the economic blow that the conflict would entail for the Germans, as they are one of our main trading partners. Specifically, and according to Industry data from January 2022, Spanish exports to the EU are around 63.5% of the total, while 56.1% go to the euro zone. France is Spain’s main customer in the region, absorbing 15.7% of sales, while Germany is the second, with 10.3%.