Thursday, 24 July 2014

Weidmann's deceit on Spanish export growth

Bundesbank Chief Jens Weidmann gave a speech in Madrid on Monday.  He followed Draghi in putting lipstick on the PIIGS, or the S anyway:
Thanks to improved competitiveness, Spanish exports have risen by 8 % over the past 12 months. Since the cyclical trough in 2009, exports have even risen by more than 50 %, with intermediate goods showing particularly strong growth.
Hmm.  When I look at ECB stats here, I get only a 36.1% rise in Spanish exports since 2009.  I presume heads are already rolling in Weidmann's office.

But the stats do show 8.1% growth in exports over the past 12 months. So maybe I was wrong about slowing Spanish export growth?  No, actually Weidmann's doing a spectacular job of lying with statistics.  Look at this chart:

As you can see, the 8.1% figure stems from a big drop-off in Q1 2013. There's no acceleration against the recent trend--if anything the opposite.  Weidmann's cherry-picking to make his case look good. Even with this help, the case that there's a significant "competitiveness" component to export growth is hard to make:
  • Export growth was much faster in 2009-2010, before the competitiveness improvements Weidmann's touting--presumably because Spanish companies had rapidly to find ways to export things Spaniards couldn't afford any more.
  • If the economy were becoming generally more competitive, imports should be capturing a smaller share of domestic demand. In fact, their share has risen continuously since 2009 and reached what was at least a 10-year high in 2013. 

Why are figures about export growth so important that Weidmann and Draghi feel compelled to be deceptive about them?  The reason is that they want to make the case that their preferred policy of austerity plus structural reform (which involves holding down wages) is a reasonable model of growth. For this to be so, exports must be able to drive growth. Consider what their policies do to the other sources of demand:
  • Government final consumption - restricted by austerity 
  • Household final consumption - restricted by austerity and structural reform
  • Investment (Gross capital formation) - so far held down by anaemic growth prospects 

This leaves just the trade surplus as a possible source of growth. For this reason, if advocates of austerity and structural reform want to be optimistic about the future, they have to trumpet--and sometimes exaggerate--export performance.  Stay tuned for another post about the weaknesses of this demand model.

PS: The Spanish export growth numbers are a bit different than in my previous post, presumably due to some combination of the facts that these are real rather than nominal figures and quarterly rather than annual ones, but that doesn't change the big picture.

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