Spain: economic health improves but imports will decline

SPAIN

Economic Health Improves But Imports Will Decline

After spending its first year in 1983 diagnosing and prescribing, Spain's socialist government sees no chance for the country's long-term economic recovery unless a heavy dosage of bitter medicine is administered swiftly. U.S. exports are expected to continue the downward slide begun in 1983, as a result of the treatments planned to help the economy in 1984. U.S. exporters offering goods, services, and technology that will assist Spanish firms to improve their international competitiveness will still find Spain a good market. Firms offering products for domestic consumption, however, will have to wait for 1986 or later to enjoy a growth market.

U.S. exports 1983--$2,763.2 million

U.S. imports 1983--$1,533.0 million

U.S. shipments to Spain fell 20 percent last year to $2.8 billion, closely tracking the peseta's 30 percent decline in strength versus the dollar in the same period. The U.S. share of total Spanish imports now stands at 11.4 percent, down 3 points from a year ago.

The Spanish government has four key treatments planned for stimulating GDP growth of 2.5 percent in 1984. The first--limiting inflation to an 8 percent increase versus last year's 12 percent--will require the government to increase tax revenues and to tug strongly on the reins of the money market. Loan interest rates will probably reach skyward in response, equaling or exceeding the 20-25 percent range of last year.

Because of high public sector employment in weak industries owned by the state holding company, I.N.I., the government's second treatment--limiting the public sector deficit to 5.5 percent of GNP from last year's 6 percent --will mean that real wages must decline in 1984 and probably in 1985 as will. The government has targeted a 6.5 percent wage increase for both the public and private sectors, against the expect 8 percent inflation. The prescription also does not envisage a major improvement in Spain's 18 percent unemployment rate, allowing for no more than a 0.8 percent reduction during the year, an effective addition of 110,000 jobs. Although this is far from the government's campaign promise to create 800,000 jobs in four years, it is considered a necessary prerequisite to furture job expansion.

The government's third treatment-- cutting the blance-of-payments deficit on current account from $3.5 billion to a more digestible $1.5 billion--will be attempted primarily by assisting exports to grow at an 8.5 percent annual rate and by attempting to hold import growth, through measures unspecified, to 3 percent.

These first three actions are directed at the symptoms of Spain's economic ailment. The government plans to handle the underlying illness--an archaic industrial base--in its fourth treatment by administering injections of new technologies, new labor laws, and new money. Industrial reconversion plans are in progress for steel, shipbulding, capital equipment, and textiles, while a new plan has been formulated for fostering an electronics industry. The plans provide for soft loans, tax deferrals, and the rationalizing of production by merging competitors. Changes in restrictive labor laws are being prepared to reduce the cost of supporting employees and to allow terminating those no longer required or qualified. The electronics plan is especially designed to encourage private injection of new technologies and capital, both foreign and domestic, and to provide a sheltered domestic market until the industry is on its feet.

So, while wthe first three treatments will depress U.S. export opportunities in the near term, the fourth should work in favor of U.S. exports. Good opportunities are expected in 1984 for U.S. suppliers of computers and peripherals, process control instruments, telecommunications equipment, industrial safety and security products, food processing and packaging equipment, electronic components, and electronics production and test equipment.

In March, the Commerce Department will organize a U.S. section at SIMO, an exhibition for safety and security equipment. An electronic components and test equipment trade mission is scheduled for April. A U.S. section is planned for the Spanish chemical exhibition, EXPOQUIMA, in November to promote chemical compounds and process control instruments.

For further information about this area, contact the Department's desk officer for Spain, tel. 202-377-4509.

COPYRIGHT 1984 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group