Sunday, 27 May 2012

What we can learn from Spain

I want to highlight a couple of facts regarding Spain's performance that I consider to be notable. By that I don’t mean (or imply) that the Spanish economy is in good shape. One look at the country’s unemployment rate or several other factors (that I don’t want to go into) would make such a claim border to the ridiculous. But one can search for and find green shoots in many rather unlikely places and try to learn from them.

The first notable achievement for Spain is depicted in the following chart.

source: Eurostat

As you can see Spain’s trade deficit has all but zeroed.  What’s more, growth in service and goods exports was equally robust.

source: Eurostat
Furthermore, the strong export growth was the undisputed catalyst of the trade deficit narrowing, since no severe decrease in imports was recorded.

source: Eurostat

Is this remarkable growth in exports the result of internal devaluation (meaning an outright slash in wages) ? Well, hard as I looked I couldn’t find evidence of a slashing of wages in Spain. Here are the official figures from INE (Spain’s national statistical agency).

source: INE

I would like to caution against interpreting the slump in aggregate compensation of employees (Eurostat data) as a wage decrease. This is an aggregate figure and unemployment in Spain holds the sad Euro-Area record (even higher than my native Greece). So there was no actual decrease in wages (at least not one that I could find in official figures – anyone that knows differently should say so in the comments section and enlighten us all).

Nonetheless, Unit Labour Costs for Spain decreased. 

source: Eurostat

But how is that possible? The next chart can provide the answer.

source: Eurostat

The answer is that the decrease in unit labour costs (ULCs) stems from a sustained spike in productivity, which for all years since the current depression started rose significantly faster than the 00s. 

One could not claim that the impressive performance of Spanish exports can be attributed solely to the fall in ULCs, it is undoubtedly a multifactor occurrence. What we should note is that measures which boost productivity can result in a reduction in ULCs that could equals the one produced by wage-slashing.

P.S. I don't know what figures Eurostat uses in order to compile the ULC measure but I doubt they are the same with the INE wage time-series, any inconsistencies are down to that.

P.S.2. Here's the chart showing the % change in the unemployment rate and in the aggregate compensation of employees.

source: Eurostat

Tuesday, 1 May 2012

A quick look at the relationship between currency devaluations and export performance for Greece

Just a really quick post today. A lot of commentators are proposing that currency devaluation is the solution to the acute competitiveness problem that Greece is facing.  

In the chart I've plotted cumulative export performance for goods and services along with the cumulative change in the level of the exchange rate.

Exports could be boosted by devaluing one’s currency but then again they may not. It really is as ambiguous as that.  Currency devaluations do not change an economy’s fundamentals. For that to happen there are other prerequisites. There are so many different factors affecting a country’s export performance, I couldn’t even dream of writing them down. I’m not going to say anything further I think the chart is telling. Enjoy the 1st of May all of you. 

source: AMECO, own calculations