Euro and low inflation boost price competitiveness in fourth quarter of 2014

The foreign trade competitiveness of the Spanish economy in the fourth quarter of 2014, taking the Consumer Price Indices as a reference, increased vis-à-vis the EU due to lower Spanish inflation compared with the average rate of inflation in the other EU countries and the depreciation of the Euro against the currencies of those countries.

Spain also gained competitiveness over the OECD. This was boosted significantly by the considerable depreciation of the Euro in the fourth quarter of the year and a greater contraction of Spanish prices in relation to the average year-on-year change in prices from the other OECD countries.

When considering the CTI calculated using the Export Unit Value (UVI) in the third quarter of the year, a gain in competitiveness was posted vis-à-vis the EU, the Eurozone and the non-Eurozone EU countries as a result of the greater downturn posted by Spanish export prices compared with the lower average downturn in export prices from the EU countries, coupled with the depreciation of the Euro against the currencies of those countries.

Spain also gained competitiveness over the OECD countries. In this case, the increased competitiveness was achieved through prices given that the appreciation of the Euro had a negative effect, albeit to a lesser degree than in previous periods.

Compared with European Union countries (EU-28), the CTI fell by 1.2% year-on-year in the fourth quarter of 2014. This is the fifth consecutive quarter in which Spain has increased its competitiveness against this region. This price competitiveness improvement can be explained by falls in both the consumer relative price index of 0.9% and the exchange rate index of 0.2%.

Compared with the Eurozone (EMU-18), the CTI also fell by 0.9% in the fourth quarter of 2014 on the same quarter of the previous year, as did the consumer relative price index.

When compared with those European Union countries not forming part of the Eurozone (non-EMU-18 EU-28), the CTI fell by 2% in the fourth quarter of 2014. This gain in competitiveness can be explained by the simultaneous fall in the consumer relative price index of 1% and the exchange rate index which also stood at 1%. The depreciation of the Euro has been boosting competitiveness over these countries in the last two quarters.

Hence, competitiveness increased over all the three regions in 2014 as a whole, mainly due to the low inflation when compared with the average rate of inflation posted by the countries of the three regions and, to a lesser degree, the depreciation of the Euro.

Compared with the OECD

In the fourth quarter of 2014, a competitiveness increase was also posted versus the OECD countries, as well as versus those countries belonging to neither the Eurozone nor the EU. This was the second quarter in which there was a gain in competitiveness versus these regions since the end of 2012.

Hence, the CTI against the OECD fell by 3.1% year-on-year. This gain in competitiveness was the result of a 1.7% drop in the relative price index, enhanced by the 1.5% drop in the exchange rate index.

Versus the non-EMU-18 OECD countries, the CTI fell by 4.7% in the fourth quarter of 2014 due to the depreciation of the Euro in this period (compared with the significant appreciation in the first two quarters of the year), which was reflected in a significant decrease in the exchange rate index of 2.6% and a fall of 2.2% in the relative price index.

In comparison with the non-EU-28 OECD countries, the CTI decreased by 5.4% year-on-year in the fourth quarter of 2014. As was the case in the previous regions, this gain in competitiveness was mainly a result of decreases in both the relative price index, by 2.5%, and the exchange rate index, by 3%.

The slow-down in Euro appreciation in the third and fourth quarters enabled a gain in competitiveness in these regions, where Spain has been price competitive in the last five quarters. This enabled Spain to gain competitiveness over the OECD countries throughout 2014.

Compared with BRICS countries

The CTI calculated vis-à-vis the BRICS countries fell by 5.2% year-on-year in the fourth quarter of 2014, the second negative rate since the third quarter of 2013. This gain in competitiveness was caused by the reduction in the relative price index of 4.1%, further increased by a fall in the exchange rate index of 1.1% (a decrease that contrasts with the strong increases of 8.6%, 9.3% and 2.1% in the previous quarters of 2014).

The average rate of inflation in the BRICS countries has been higher than Spanish inflation since the fourth quarter of 2006, but the strong appreciation of the Euro against the currencies of these countries in previous quarters has prevented a gain in competitiveness when compared with this region. Therefore, the gain in competitiveness in the last two quarters has been unable to counteract the strong appreciation of the Euro in the early months of the year. Hence, a slight loss of competitiveness over the BRICS countries was recorded in 2014.

Compared with the European Union

Compared with the European Union (EU-28), the CTI decreased by 1.4% year-on-year in the third quarter of 2014. This gain in competitiveness was caused by a 1.1% drop in the relative export price index (the year-on-year rate of Spanish export prices is lower than the average year-on-year rate for export prices from the other EU-28 countries), while the exchange rate index fell by 0.3%.

The CTI calculated against the Eurozone (EMU-18) fell by 1.4% in the third quarter of 2014. This gain in competitiveness was due to the relative export price index decreasing by the same amount.

Compared with European Union countries not belonging to the Eurozone (non-EMU-18 EU-28), the CTI fell by 1.2% in the third quarter of the year. Both the exchange rate index and the relative export price index fell by 1% and 0.2%, respectively, leading to a gain in competitiveness against this region.

The gain in competitiveness against the EU, the Eurozone and the non-EMU EU was caused by the greater decrease in Spanish export prices when compared with the average year-on-year variation in export prices from these countries and the depreciation of the Euro in the third quarter of 2014.

In the first nine months of the year, an increase in competitiveness was posted against the EU and the EMU, although a decrease was posted against the non-Eurozone EU.

Compared with the OECD

The CTI calculated vis-à-vis the OECD countries decreased by 1.3% year-on-year in the third quarter of 2014. This increase in competitiveness was mainly caused by a 1.6% year-on-year drop in the relative price index, slightly offset by the 0.3% increase in the exchange rate index.

Compared with those countries not forming part of the Eurozone (non-EMU-18 OECD), the CTI fell by 1.1% in the third quarter of 2014. The exchange rate index rose by 0.5%, while the relative price index fell by 1.7%.

Finally, in comparison with the non-EU-28 OECD, the CTI fell by 1.1% in the third quarter of 2014. The same performance was seen as in the other regions of the OECD; the exchange rate index rose slightly by 1% and the relative export price index fell by 2.1%.

As for the OECD, the gain in competitiveness versus all these regions was caused by the slight appreciation of the Euro in the third quarter, which was more than offset by the gain in competitiveness through prices.

Between January and September 2014, Spain lost competitiveness against the OECD when compared with the same period last year, mainly due to the appreciation of the Euro against the currencies of these countries in the first months of the year.