August 16, 2012 / 4:03 PM / 5 years ago

Spain exports a cushion, no springboard for growth

MADRID (Reuters) - Spanish goods exports extended a strong run of growth in June, but a reliance on European buyers and the slow pace of structural reform mean policymakers’ hopes that a rapidly improving trade balance may rescue the economy look misplaced.

Goods exports hit 18.9 billion euros ($23.2 billion), economy ministry figures showed on Thursday, meaning they rose in five of the first six months of 2012 and, excluding energy trades, outpaced imports by 1.2 billion euros in June.

Spain’s exports have held up well since the economy began to shrink in 2008, providing the only positive growth variable in a dismal economic backdrop that has placed the country at the centre of concerns about the euro zone debt crisis.

The government is hoping foreign sales may eventually hold the key to pulling the country out of recession in the face of weak consumer demand worsened by sky-high unemployment and a harsh austerity programme.

But reliance on demand for its products from its European neighbor may become increasingly risky as the debt crisis hits consumers throughout the region and depresses the economy.

“(Spanish) exports have two main problems: competitiveness, which has improved, but more must be done through structural reforms, and a lack of financing,” Trade Secretary Jaime Garcia-Legaz told Reuters.

State help for the sector is worth little if the economy itself is not competitive and while its banks, battered by a property market in freefall, refrain from handing out loans, he said.

“It’s because of this that the best policy for internationalization is one of structural reforms, such as that of the labor market. Deep down, you’re doing more to boost exports than however many euros spent on promotion.”

In June, almost two thirds of Spain’s exports - mostly machinery, parts, cars, chemicals and agricultural products - went to the European Union. A third went to France, Germany and Portugal alone, the ministry data showed.

DOMESTIC WEAKNESS

Since late 2007, the Spanish economy has shrunk 3.8 percent while exports of goods and services have grown by 1.6 percent, according to the National Statistics Institute.

The rise of the foreign trade sector - exports accounted for 26 percent of GDP in 2007 and 30.7 by the first quarter of 2012 - is as much a result of weaknesses elsewhere, and its potential for growth faces the same headwinds as the broader economy.

Domestic weakness has meant imports have barely changed since 2010, at 21.6 billion in June compared to 21.4 billion two years earlier.

Spain entered its second recession in three years in the first quarter, and imports have dropped steadily since the start of the year. Consumer confidence and retail data suggest the decline could accelerate.

Madrid asked for up to 100 billion euros from Europe to rescue its ailing banks in June, and the government announced new austerity measures, including value-added tax hikes, in July, when consumer confidence readings fell to record lows.

Consultancy 4Cast said on Tuesday there was a 60 percent chance Spain would need another 300 billion euros in European aid.

Meanwhile, many of the country’s larger companies have highlighted in first half earnings reports how heavily the struggling domestic market has weighed on business, in contrast to the potentially far higher returns available in overseas emerging economies.

Fernando Abril-Martorell, chief executive of heavily indebted Prisa (PRS.MC) said of the group’s activity in Latin America: “Diversification is really compensating for the weak environment domestically.”

Many have already shifted much of their business abroad - Banco Santander (SAN.MC), the euro zone’s largest bank, already has a fifth of its assets in Latin America - and some smaller firms are following suit.

“Before, people would go to supermarkets and fill their trolleys with 100 euros of products while now they’ll look for bargains and spend half that,” said Tomas Gonzalez Hurtado, head of sales at Castilla-La Mancha cheese producer Coqueya.

“We’ve been increasing our sales volumes because we’re increasing our exports and focusing on the external markets.”

($1 = 0.8142 euros)

Editing by Fiona Ortiz, John Stonestreet

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