Christian Manrique’s new post
As the IMF WEO (World Economic Outlook) report points out, after a lackluster outturn in 2016, economic activity is projected to pick up pace in 2017 and 2018, especially in emerging markets and developing economies. But let’s analyze 2016 activity. Economic growth was estimated in 3.1%. Nevertheless, World Trade Organization stated that world trade would be around 1.7% below world economic growth. In fact, this has been quite remarkable, as world trade, for the last fifteen years, hasn’t grown below economic rhythm.
Strengths and frailties
Along with little investment, the encouragement of China’s domestic consumption and USA protectionists measures, could make this situation last a little bit longer.
This is reflected upon global imports and exports growth with a decreasing rate for the last three years. European Union, within the developed economies group, has taken a growing pace. Within the EU, Spain is above traditional exporters like Germany, France or the UK.
Given the world situation, exports have become, more than a need, a survival instrument. Domestic demand and global markets fall are forcing enterprises to take exports and internationalization seriously.
Taking into account the first factor, and focusing on the country that has behaved in more positive way according to figures, Spain’s exporting behavior should become stronger and not be left as a survival issue. Two main frailties should be corrected:
– On one side, exports should be encouraged, but technological exports that generate value added. Innovation and R&D should be the central axis for companies and institutions. Regulatory flexibility and tax advantages should come along.
– On the other hand, Spanish enterprises atomization should be reduced. In Spain SME represent 99’9% of businesses. This dwarf effect goes nowhere, although right now SME create 73% of labor before the 27% generated by big companies with a 0.1% weight.
Both factors will slow down exports development, which is essential for economic growth. Therefore, short term consequences are not being noticed because exports are based on food, automotive parts and equipment goods. If value added doesn’t show up to turn small companies into big ones, massive stagnation will be the most common trait, diminishing economic growth.
The challenges that governments and companies must face immediately are adopting innovation as a strategic axis for their development and, on the other hand, turning small businesses into big and robust ones. Governments and institutions should make efforts to make it possible in order to consolidate economic growth at medium and long term.