During the 15 years of real state boom, prices and salaries in Spain rose drastically, causing a strong loss of national companies' competitiveness.
In the last four years, the country has regained 13 of 16 points, which means a 70% of the total, largely because of lower unit labour costs, the financial newspaper Cinco Días said in its Thursday edition.
The Bank of Spain competitiviness index shows how Spain, from the beginning of the crisis, was gradually losing positions against the euro area, reaching a record high in the third quarter of 2008. Regarding the unit labour costs (the salary costs for each produced unit), losses went up to 16 points, while prices reduction limited to 10 points. Nevertheless, both items have evolved in a very different way since the crisis sparked.
The dramatic decline in jobs, estimated in 2.5 million in four years, added to wage moderation (agreed salary increases have gone from 4.2% in 2007 to 2.1% in 2012), have resulted into an unprecedented adjustment of labour costs for companies, with a fall of 13 points. Marta Noguer, economist at La Caixa Economic Research Department, believes that the economy must continue to evolve into this trend, so that Spanish companies can
compete in the outside markets.
“Internal demand will remain depressed in the medium term due to adjustments and fiscal consolidation, so the only way to growth is coming from the outsider sector”, she points out.
La Caixa researchers outlined two scenarios, each with a different development for the internal demand. In the first one, considering a 0% growth, it would be required a exports increase of 10% if the aim is that the Spanish economy resumes a growth rate of 2%. In the second scenario, considering a 1% growth, the exports rising would be limited to 6.9%, a similar pace to the average registered between 1999 and 2007.
Furthermore, these competitiveness gains in the outside sector could be improved through two exogenous factors such as the euro depreciation and the sharp fall of oil prices. A cheaper single currency represents a relief for exporting companies, which will see reduced the price to sell goods and services out of the euro zone, while lower oil prices alleviate the industries that uses it intensively.
PRICES SHOULD FALL FURTHER
The labour costs fall have not implied a similar cut in prices. During the crisis, none of the 10 points of competitiviness lost before 2007 have been recovered. According to the analysts, it was due to the fact that profits have not moderated at the same speed that salaries have. In fact, in the last labour force survey, the whole remuneration of all workers was lower than companies profits.