Twelve months on from the first Grant Thornton Future of Europe report the situation in the eurozone remains difficult. Growth rates are flat, if not negative, and moves to integrate states more fully through a banking union – in order to break the link between weak banks and weak sovereigns – are not moving as quickly as many would like. The messy bailout of Cyprus and the rejection of austerity measures by the Portuguese courts have renewed fears that the eurozone could break up.
In Spain, we are deeply embroiled in the troubles of the currency union. The economy shrank by 0.8% in the final quarter of 2012 and by 1.4% across the year. Output remains more than 5% below its 2008 peak and is forecast to contract by a further 1.6% this year. The government is trying to reign in bloated state and regional budgets, yet net government debt is expected to reach 84% of GDP by the end of this year, up from 57% in 2011. The deficit is not expected to fall within the 3% range mandated by the European Commission until 2014. Unemployment is touching 27%, rising to 57% for young people – only Greece is suffering more in this regard.
However, I also see some encouragement in the labour market. Spain is undergoing a severe and painful internal devaluation which has seen unit labour costs fall by 10% from their 2009 peak. This is increasing the competitiveness of Spain as a place to do business. The decision of Nissan to invest €130m in its Barcelona plant was based upon agreements with trade unions to limit wage increases and recast working conditions. And Nissan are not the only car giants looking at Spain. Ford, Renault and Volkswagen are all expanding production to take advantage of the low wages which make our country an ideal location from which to manufacture and export automobiles.
Given the current necessary fiscal adjustments, domestic demand is not going to get Spain growing again, at least not in the short to medium-term. I am therefore encouraged by the increasingly global outlook of our businesses. Data from The Economist suggests that the number of exporting businesses increased to 130,247 in 2012, 28.4% higher than in 2008. Moreover, despite weak regional and global demand, figures from the Ministry of Economy and Competitiveness suggest Spanish merchandise export earnings stand 20.3% higher than they did in 2007. This compares very favourably to the much-vaunted German export machine which saw an increase of just 13.7% over the same period. And all the while, Spain is reducing its dependence on its neighbours: the share of merchandise exports to the EU fell to 62.8% in 2012, down from 70.7% in 2008. Our current account deficit has been slashed to just 0.8% and I expect it to climb into surplus in the short term.
To suggest that globalisation is the answer to all of Spain’s woes is too simplistic. Many challenges remain before growth and jobs return to the economy. And the solution for many of them will require further difficult negotiations between EU members. However, where others see a crisis, we at Grant Thornton see an opportunity. Spain is a great country, a fact our most dynamic business leaders are exporting all over the world every day.
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José María Fernández is Managing partner of Grant Thornton Spain.
