Spain : Competitiveness and the external sector

with the economy’s progressive loss of competitiveness with regard to the foreign sector. Given the importance that the external sector has taken on, both for determining the financing needs of the economy and for future potential growth, the aim of this article is to explore the pattern of competitiveness that the Spanish economy has shown in comparison with its chief trading partners, along with identifying the possible underlying causes of this pattern. The article will be structured, first, by documenting the evolution of Spain’s competitiveness through the real effective exchange rate, an indicator that is frequently used in the economic literature. Second, the pattern of competitiveness will be explored through detailed analysis of Spain’s inflation differential with respect to the Eurozone, this making it possible to identify of the explanatory factors underlying the evolution of competitiveness in Spain and to situate them within the comparative international perspective. Third, evaluation is made of the domestic foundations of the Spanish external balance, adopting the intertemporal focus of current account balance. The closing section offers reflections on the findings thus established.