The European export machine is losing muscle.
This is one of the concerns of the European Central Bank.
In a conference in Cunef, the ECB's Director of Economics, the Spanish Oscar Arce, explained that, despite the moderation in energy prices, they are much higher in the euro zone than those endured by Americans.
They already were before the energy crisis.
And it has gotten worse.
Hence the alarms have gone off about a loss of competitiveness that has resulted in a drop in European exports.
According to Eurostat, the EU has lost 10% of its share of global exports of goods and services between 2021 and 2022.
And the data for 2023 is also expected to be bad.
It contrasts with the nearly 10 points that were gained between 2013 and 2016. In those years, the adjustment in competitiveness in the South and the strength of German industry allowed it to increase its piece of the pie.
The disappearance of cheap Russian gas has meant, however, a significant loss of competitiveness, especially for German and Italian industries.
Germany relies heavily on the production of goods that require large amounts of energy to produce them.
While energy costs tripled in the euro zone at the peak of the crisis caused by the Ukrainian War, in the United States they only rose by 80%.
And Americans already had
cheaper energy prices before this
shock .
At the moment, the price of electricity in the European industry is three times higher.
Although the worst of the crisis has been overcome, the differences are now greater.
“The price increase has been greater because there is no gas in Europe and there is in the United States,” says Antonio Merino, Repsol economist.
And he adds that carbon dioxide rights explained half of the price increase on the European continent at the end of 2023.
While the Americans only use the carrot of aid to advance the climate transition, the Europeans also use penalties for polluting emissions.
“China has also been suffering from energy costs, but it has done so to a lesser extent because it is turning to coal, a much more polluting but cheaper source,” said Arce, the Spaniard who heads the ECB's economic analysis.
Relocations for energy
A report from the European Commission highlights that energy costs are an essential factor in the location of the industry.
And he concludes: “The
Inflation Reduction Act
[inflation reduction law, known by the acronym IRA] that the United States has approved and the subsequent subsidy race have been highlighted, but differences in electricity prices may play a role. critical and are often overlooked.”
The impact of prices can be observed in the evolution of the industry that is dependent on energy versus that which is not.
The behavior of one with respect to the other has been much worse in Europe than in the United States, according to ECB figures.
European companies that need more energy are being left behind.
“There is a recomposition, some companies are moving production to where energy is cheaper,” said Arce.
This is the case of Basf, the main German chemical firm, which announced that it will reduce its presence in Europe while increasing it in the United States and China.
He alleged rising energy prices and overregulation.
Although it is still premature to have data on relocations, the German employers' association in the chemical sector has warned that a fifth of the sector's investments have been directed to China.
Data centers, so necessary now in a digitalized economy, are also very energy intensive.
And the transition to the electric car is another obstacle on the way: the combustion car required a technical complexity in which the German industry was unbeatable.
But the electric one is much simpler to produce.
Thus, German competitiveness has been wiped out at a stroke and China is taking the lead in this industry: the country has gone from being a net importer of vehicles to an exporter.
What's more, as Merino highlights, the Chinese have beaten Germany as the world's leading exporters of chemicals, machine tools, electrical appliances and automobiles.
The Chinese slowdown also causes Germany to export less.
But not only that: to compensate for its sudden real estate slowdown, Beijing is strongly promoting credit and subsidies to the industry, which may be generating overcapacity and increasing Chinese competition for exports.
Arce pointed out that energy-intensive exports are weighing down sales abroad very markedly.
“Perhaps not so much for Spain, where services are more important, but it is a problem for other euro countries that are very dependent on Russian gas,” he indicated.
Energy has caused the trade balance to suffer a significant deterioration in the main euro countries.
Although the good news is that in the second half of last year the EU could have recorded a surplus after seven consecutive quarters of deficits.
Structural delay
Although there has been some relief in recent months, PMI business surveys show that German manufacturing has been contracting for nearly two years.
At the end of 2023, the manufacturing production index falls in the eurozone by close to 5% compared to the levels of December 2021. And in electro-intensive manufacturing, no country in the eurozone has recovered the levels of 2019. “The poor performance of the industry seems to have a structural component,” says María Jesús Fernández, an analyst at Funcas.
Isabel Schnabel, member of the executive council of the ECB, declared last week that Europe accumulates a structural delay with the United States, due to a worse evolution of productivity, lower public and technological investment, worse training of workers in technology, smaller companies and more bureaucracy and barriers to business growth.
In a context of population aging and in which people prefer to work fewer hours, it is essential to improve productivity to sustain the welfare state and investments, she warned.
However, since the beginning of the century, Europe has lost 20% of productivity compared to the United States.
A technological gap is opening, she pointed out.
All this is being reflected in the investment.
In Germany it is depressed.
“It is more attractive to invest in the United States, with cheaper energy costs and intense public support based on easy-to-apply tax deductions,” says Manuel Balmaseda, director of the Institute of Banking and Finance.
Washington has launched three massive programs: the IRA, the chip program and the infrastructure program.
The Americans have managed to launch more than a hundred projects with investments of more than 1 billion dollars.
It is estimated that in climate change and energy alone, the IRA could involve a disbursement of more than a trillion dollars in ten years (more than 900,000 million euros).
On the contrary, in Europe it is difficult to deploy the
Next Generation
funds , endowed with more than 800,000 million euros.
Its execution is being slow.
The Commission has only distributed 27% and countries still have to, in turn, implement them while complying with limits on state aid.
Four years after creating them, bogged down in bureaucracy, these funds are not having the expected driving impact.
“Investment is skyrocketing in the United States while it is not taking off in Europe,” Balmaseda emphasizes.
Spain endures
However, Spain has so far emerged relatively well from this crisis in the foreign sector and industry.
Despite the 2023 drop in goods exports, it is the only major European country whose trade balance has held up thanks to tourism, business services and automobiles.
Furthermore, although the industry's turnover fell by 1.6% last year, its manufacturing production is resisting the continental collapse.
The Spanish and Italian economies have managed to recover their pre-pandemic export quotas of goods and services in real terms.
Although if compared to 2010, the transalpine foreign sector has fared worse than the Spanish one.
On the other hand, Germany and France have lost more than 5% of their export quotas compared to the pre-covid period.
Even so, the governor of the Bank of Spain, Pablo Hernández de Cos, issued a warning last week.
Although the agreements have shown salary moderation and there has been a low percentage of clauses that guarantee purchasing power, salaries have risen well above the agreements in a context of increasing vacancies.
And labor costs per unit produced have risen even more due to contributions and low productivity.
This implies that in the future, if this trend continues, there could be a risk of loss of competitiveness through prices, Cos warned.
Follow all the information on
Economy
and
Business
on
and
X
, or in our
weekly newsletter
Subscribe to continue reading
Read without limits
Keep reading
I am already a subscriber
_