Italy and Spain’s exports compared in 5 charts
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Although Italy is the world’s 10th-largest goods exporter, “its performance has been disappointing”, Mauro Pisu, a senior economist at the OECD, told the Financial Times.
It is a different story for Spain, the world’s 19th-largest exporter and which has a smaller share of exports than Italy to rapidly expanding markets. According to the OECD’s latest country report, “exports have been a particular bright spot, as [the country] has resisted the slowdown in global export growth”.
What could possibly explain this discrepancy?
Economists agree that Spain has benefited from rising price competitiveness
Goods and services made in Spain are becoming cheaper to produce, while the opposite is true for Italy.
One reason is the fall in real wages. After the global financial crisis, Spanish workers lost a lot of their bargaining power and this resulted in a fall in average earnings. The country’s labour market reforms have also made it easier and cheaper to make workers redundant and encouraged companies to strike agreements at factory level rather than in collective wage deals.
But there is more. The two countries’ productivity levels are also going in two different directions.
After the financial crisis, Italy’s multifactor productivity fell, so the country needed more people or capital to produce the same value of goods and services. Spain’s remained flat.
The result is that unit labour costs in Spain are currently 4 per cent lower than at the start of 2008. In Italy they are 12 per cent higher.
Because Italy’s relative competitiveness has fallen, its share in the exports market has dropped, particularly among low value-added products such as clothes, which tend to be highly sensitive to price.
Italy is the world’s third-largest exporter of apparels and clothing, while Spain is the eighth. However since 2007, Spain’s clothing exports have increased by more than €4bn. Italy’s have also increased but by only €1bn.
Spain became more integrated in the global supply chain
Spanish businesses have also done a better job than Italy’s in integrating in the global supply chain — an increase of 37 per cent since 2009 compared with Italy’s 21 per cent, according to the OECD.
For example, production in Spain’s car industry has received more than $18bn in greenfield investment in the past 10 years, almost seven times as much as Fiat’s homeland received.
It has better tourism policies
Spain’s services exports has already overtaken Italy, while Italy’s tourism underperforms Spain, partially because it relies on regional rather than national initiatives.
Tourists spent 50 per cent more nights in Spain than in Italy last year, up from a 25 per cent gap in 2009.
Italy’s exports suffered because of a lack of investment from Europe
At the same time, Italy was badly hit by lack of investment growth in the EU because of its specialisation in capital goods. The country is the fifth-largest exporter of machinery (Spain is 22nd), according to the International Trade Centre. Italian exports of machineries rose by €6bn in the eight years to 2016. In the six years to 2007, the increase was four times larger.
The impact of the struggling steel sector
Italy’s steel specialisation tells a similar story. The European steel sector is suffering from overproduction and rising competition from China. As a result ILVA, Italy’s largest and oldest steel producer, has been brought to its knees.
The value of Italian iron and steel, the country’s sixth-largest export product, contracted by nearly €2bn compared with its pre-crisis levels.
The trend might reverse in the future
However, Spain’s competitive advantage could backfire.
“[Spain’s] exporters specialise in medium-low quality, [which are] more exposed to competition from emerging economies,” says the European Commission. “Even more so as the average quality of Spanish exports to the EU decreased in relative terms between 2010 and 2015”.
Conversely, Italy’s higher value-added exports have actually been performing well. Exports for its pharmaceutical products, for example, increased by nearly €9bn since the financial crisis.
Because Italy is transitioning to higher value-added sectors, such as pharmaceuticals and robotics, this is likely to have a greater impact on its overall trade performance.
Italian machinery and robotics companies did suffer from a lack of investment growth, but Mr Pisu said that “if the level of EU investment starts growing again, there could be positive surprises ahead for Italy’s exports performance”.
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