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Spain’s continuing export boom  analysis

Spain’s continuing export boom analysis

MADRID: Exporting was a path to survival for many companies after the country went into a prolonged recession following the bursting of a massive property bubble in 2008 and the global financial crisis.

Faced with plummeting demand from consumers, companies and the government, some companies, particularly small and medium-sized ones, had no alternative but to seek out markets abroad or face going to the wall. For those that have been successful, exporting has become a way of life even though the domestic market has picked up. The €88 billion rise in exports since 2008 is a striking achievement.

The export concentration is due to the high atomisation in Spanish companies: their average size is a fraction compared to that of many other developed economies. This limits export capacity as it is widely accepted that firm size is the largest single determinant for companies to start exporting. Larger firms tend to have higher productivity growth, so their unit labour costs typically rise less than for smaller and less productive firms.

In an otherwise bright picture, exports to the UK, which leaves the EU in 2019, were down 1.1% at €18.9 billion and imports from there were up 2.3% at €11.4 billion. With two-way trade at €30 billion, both countries have a vested interest in achieving a post-Brexit trade deal that maintains as far as possible their respective market positions.

With this in mind, UK Chancellor Philip Hammond included Madrid in a visit to EU capitals this month in a Brexit charm offensive. Whether Spain’s exports to the UK are hit by the new trade arrangements after Brexit remains to be seen. Whatever happens, Spain needs to keep up the export pace.