At the heart of the economic problems that today cripple Spain’s recovery there remains an insufficient national demand. The consensus for the rest of 2013 isn’t hopeful: most data point at weak consumption levels, investment and public spending. The only bright spot seems to be exports, which have gained weight among the few positive indicators and already represent 33% of the entire GDP–it was 24% in 2009 and their rise has been unstoppable against much milder or negative trends of other developed economies.
Spain’s economic stability depends on the external demand, indeed. The domestic demand has slept in a coma since 2008 and there are little expectations of green shoots because households and companies still need to reduce debt pressures, state investment in construction will stay at all times low for a long while, the unemployment bubble doesn’t deflate and banks are busy finding cash to match regulatory reserves instead of actively lending.
Without the Spanish exports activity success, the country’s recession would be even more painful. Up to 75% of the whole volume of exports is made up by food, semi-manufactured products, capital goods, and car industry-related products.
But a factor to bear in mind is that in all those sectors, foreign investment punches high and has become vital. In March, after six months in a row of increases, foreign investors withdrew some -€5.16 billion. It wasn’t a loud signal of loss of confidence–in March 2012 this figure had been -€67.46 billion–but it meant the first hiccup since September 2012, with accumulated inflows of €116.13 billion.
Net accumulated investment in the first quarter of this year was €36 billion, in any case, a clear reversal from the -€97.65 billion recorded during the same months in 2012.
What worries international analysts is how Spain can generate trust among investors in spite of the current political turmoil and the degree of legal uncertainty that appears to surround the reform of the energy sector. Prime Minister Mariano Rajoy and his government are aware of the disastrous consequences that those situations could have over Spain’s foreign trade and that the country’s economy would widely resent.
Spain must nurture domestic and foreign investor confidence. The Rajoy cabinet is not alone in this mission: Morgan Stanley and the latest edition of the World Investment Report, for instance, consider Spain one of the most interesting investment destinations in Europe.
Yet, markets confidence is hard to gain and easy to ruin. What is important is how the Spanish economy is seen and improves its image. The Rajoy government needs to maintain the optimistic momentum that its decisive reform programme has brought in, and the good results it is beginning to show. This is the Spain brand at its best.