Spanish Exports Mark Record Year as Rajoy Craves Repeat

Spanish officials affirmed the magnitude of the country’s export boom today after the best annual performance on record as they count on a repeat in 2014 to sustain the economic recovery.

Deputy Trade Minister Jaime Garcia-Legaz announced in Madrid that the value of goods sold abroad last year rose to the highest level since at least 1971, and the trade deficit shrank to the smallest on record too. Those data, signaled by Spain’s tax agency on Feb. 19, follow an improvement in competitiveness Prime Minister Mariano Rajoy claims credit for.

Artero SA, a maker of goods for hair salons with almost 50 staff, typifies the continued dependence of the euro region’s fourth-biggest economy on exports to shake off the legacy of a six-year slump. The family-owned business is looking to Russia and Sweden for profit growth as sales tax increases at home put a lid on demand for its scissors and hair irons.

“Spanish sales have clearly improved in recent months but there’s still no comparison with business abroad,” Alex Artero, who heads the business founded by his great-grandfather in 1909, said in a telephone interview from his facility at Vilassar de Dalt, near Barcelona.

While local sales will probably increase slightly this year after declining about 3 percent in 2013, revenue will once again be driven by double-digit increases abroad, he said.

Export Forecast

Garcia-Legaz unveiled trade data at a press conference at the Economy Ministry in the Spanish capital today. Exports of goods rose an annual 2.9 percent to 18.3 billion euros ($25 billion) in December, bringing the full-year total to 234 billion euros and shrinking the trade gap to 16 billion euros.

“Spain’s competitiveness is improving and the number of exporters is increasing,” he said.

Deputy Economy Minister Fernando Jimenez Latorre already raised the government’s 2014 forecast for export growth of goods and services last week from 5.5 percent to as much as 7 percent -- almost double the 3.7 percent increase predicted by the European Central Bank for the entire euro area.

“Spanish unit labor costs have fallen, increasing the country’s competitiveness,” said Juan Jose Toribio, a professor at the IESE business school in Madrid and a former head of finance policy at the Economy Ministry. “In a very short period of time, Spain has succeeded in turning a record deficit in its current account into a surplus.”

Extra Yield

Investors, encouraged by ECB President Mario Draghi’s pledge to defend the euro, have already returned to the nation’s stocks and bonds as they hunt for extra yield amid unprecedented central-bank stimulus measures. The yield on Spain’s 10-year benchmark bond fell by four basis points to 3.56 percent at 2:30 p.m. in Madrid while Spain’s Ibex-35 index of leading companies has gained 25 percent in the past year.

Data for 2012 show the contribution of exports to gross domestic product in Spain rose to 33 percent in 2012 from 27 percent in 2008, before the end of the country’s real-estate boom. That was still below the level in the euro area and exceeded only France, Italy and Greece. Shipments of machinery and transport equipment accounted for 28.5 percent of all Spanish exports that year, compared with 57.1 percent in Germany, Europe’s largest economy.

Since coming to power in 2011, Rajoy has struggled with the legacy of a slump that led him to seek European Union aid in 2012. His government is extending the deepest austerity measures in Spain’s democratic history to fight a surge in public debt and has overhauled labor rules that make it cheaper to fire workers and easier to reduce wages in order to help companies become more competitive.

Domestic Demand

While such measures have aided Spain’s export profile, officials are now watching for more of an impact on domestic demand in a country where the jobless rate at 26 percent remains the second-highest in the European Union.

The Bank of Spain estimated last month that household spending did start to recover in the second half of 2013. Employment expanded in the fourth quarter for the first time since 2008, and economists in a Bloomberg News survey forecast private consumption will rise 0.5 percent this year, generating growth for the first time in four years.

“We are now in a situation where the private sector can gradually start spending a little, hiring here and there, maybe increasing wages a bit,” said Gilles Moec, European economist at Deutsche Bank AG in London. “Companies no longer need to shed labor and this has stopped the negative spiral of unemployment rising every month, damping households’ prospects.”

‘Real Recovery’

The European Commission predicts the Spanish economy will grow 0.5 percent this year and 1.7 percent next, compared with expansions of 1.1 percent and 1.7 percent in the euro area.

“It’s a real recovery,” said Robert Wood, an economist at Berenberg Bank in London and a former Bank of England official. “Spain has freed up its labor market. It’s been extremely painful but there have been real changes and it’s showing up in exports as well as in indicators of domestic demand.”

A recovery of Spain’s main trading partners -- France, Germany and Italy -- may help broaden the country’s trade pickup after exports to Latin America, Asia and Africa rose the most in the past two years. The euro-area economy expanded more than economists forecast in the final quarter of 2013.

Emerging markets will still continue to be a source of growth for Fluidra SA, even as some of those economies face the prospect of slowing expansion. The pool supplier and water treatment company generates 80 percent of its revenue outside Spain.

“Opportunities remain huge to increase our market share in Brazil or in China,” Chief Financial Officer Xavier Tintore Segura said in a telephone interview. “We have established local production capacity enabling us to be competitive.”

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