Pablo Hernández de Cos: Fit-for-purpose external statistics in a
changing global landscape
Opening remarks by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at
the Conference "External statistics after the pandemic: addressing novel analytical
challenges", organised by Irving Fisher Committee on Central Bank Statistics of the
Bank for International Settlements, European Central Bank and Bank of Spain, Madrid,
12 February 2024.
* * *
Good morning,
It is a great pleasure for me to welcome you to the second Conference on External
Statistics, organised by the Irving Fisher Committee on Central Bank Statistics of the
Bank for International Settlements, the European Central Bank and the Banco de
España. This conference aims to promote the interaction between compilers and users
of these crucial statistics.
Let me first thank you all for showing such a great interest in the conference. A large
number of contributions have been received from statisticians, analysts and
researchers, which I believe will provide an excellent basis for discussing and
exchanging ideas over the next two days.
I would also like to give special thanks to Philip Lane, who is sure to contribute some
very inspiring ideas about the challenges of maximising the usefulness of external
statistics for accurate analysis and sound policy making.
And I am also grateful to our colleagues from the Bank for International Settlements and
the European Central Bank for choosing our institution to co-organise this second
edition of the conference.
***
Before turning to the subject of the conference, I would like to say I am particularly fond
of the external sector and its statistics, as they remind me of a time when, as a young
researcher, I immersed myself in them to better understand the external challenges
facing the Spanish economy. External statistics are currently bringing very good news
about the Spanish economy, but this has not always been the case.
In the past, with its integration into the European Union and the adoption of the euro,
greater external openness allowed Spain to boost its economic growth and converge
towards the most advanced economies in Europe, thanks to more active participation in
global markets, the adoption of foreign innovations, the availability of external financing
and increased competition in its economy.
However, the external sector also represented a significant macro-financial vulnerability
for Spain when persistent external imbalances built up. This was the case during the
expansionary phase experienced by the Spanish economy from the late 1990s until the
Great Financial Crisis, a period marked by significant competitiveness losses vis-à-vis
Spain's main trading partners. The accumulation of these imbalances was fuelled by a
context in which growth expectations - based on domestic demand - turned out to be
very optimistic and by the availability of abundant financing from abroad on very
favourable terms.
During this phase current account deficits rose very significantly, to 9.4% of GDP in
2007, contributing to a substantial increase in Spain's negative net international
investment position (IIP) (to 97.6% of GDP in 2009). At the time Spain had one of the
largest external imbalances among the advanced economies.
Indeed, the high dependence on external financing dramatically increased the impact
on our economy of the Global Financial Crisis and the tensions in the euro area. In an
initial phase, the financial crisis led to high capital outflows, following an abrupt
correction of Spain's growth prospects. As in other highly-indebted peripheral euro area
economies, Spain's large external debt proved to be a major source of macroeconomic
vulnerability, particularly during periods of financial turbulence or changes in investor
sentiment.
But the picture has changed radically over the last decade. Following the Great
Financial Crisis, the external sector has made a huge contribution to the recovery of the
Spanish economy. This has been achieved through a very significant adjustment
underpinned by a series of structural reforms that led to an internal devaluation
process, reversing the competitiveness losses accumulated in the past. In terms of
relative unit labour costs (ULCs), these losses amounted to almost 20% from the
introduction of the monetary union until 2008, but were virtually corrected by 2015
thanks to the competitive adjustment process undergone by the Spanish economy.
These sustained gains over time were made possible by the relative wage moderation,
while the improvement in relative labour productivity occurred mainly during the
largescale job destruction experienced during the recession.
The improved competitiveness of the Spanish economy boosted export growth, leading
to gains in global real market shares, which, during the recovery from the economic
crisis, performed better than in our main euro area trading partners. Thus, Spain's
market share grew by around 2% between 2010 and 2019, in contrast to the declines
seen in France and Italy and the stability in Germany.
This has allowed us to maintain sustained current account surpluses for the first time in
our recent economic history. And they have even survived the COVID-19 pandemic, the
energy crisis caused by the Russian invasion of Ukraine and the tightening of interest
rates. In 2023, there was a current account surplus - of around 2.5% of GDP, a higher
percentage than in 2019 (the year before the health crisis) - for the twelfth consecutive
year.
The resilience of the current account to the shocks of recent years has been
underpinned by the recovery of tourist flows as the COVID-19 pandemic subsided and
by the strong dynamism of non-tourist service exports. These developments prompted
a significant correction of Spain's negative net IIP, which fell by 40 percentage points
(pp) of GDP from 2009, to stand at 53.6% of GDP in the third quarter of 2023.
The adjustment was concentrated in the private sector, whose negative net IIP fell by
70.7 pp of GDP between 2009 and 2023, to 5.8%, mainly as a result of the correction of
the private financial sector's debtor position.
This sector had accumulated a high level of external indebtedness in the form of debt
securities during the expansionary stage prior to the financial crisis. Conversely, the
debtor external balance of general government is now higher than in 2009 (up by 12.5
pp of GDP to 38.2%), in line with public debt developments.
Despite this adjustment, Spain's negative net IIP remains comparatively high, so
external surpluses will continue to be needed to reduce this potential source of
vulnerability. This objective requires, in particular, the consolidation of a path of
structural correction of public finances, with a view to reducing the high level of public
debt accumulated in recent years, since, as I have already mentioned, the process of
external deleveraging of the Spanish economy has been concentrated in the private
sector, while the public sector's debtor position has increased. At the same time, export
growth in the medium term could be jeopardised if the deterioration in ULCs relative to
our main euro area partners observed since the pandemic continues over time.
Sustained external surpluses ultimately depend on real productivity gains that allow for
wage growth without undermining firms' competitiveness. To mitigate these risks, we
need to adopt a set of structural policies aimed at boosting productivity by improving
productive capital, labour force skills and market efficiency, removing obstacles to
business growth.
****
In a more general context, it is clear that openness has enabled the global economy to
experience sustained and widespread growth over the past few decades, but this has
also led to the accumulation of certain vulnerabilities.
Recent extraordinary shocks, the COVID pandemic and the war in Ukraine have
significantly disrupted global value chains and commodity markets and have created an
environment of heightened uncertainty and geopolitical tensions.
These new developments have emerged in the last few years, but before that we had
already seen trade tensions between the United States and China. And, unfortunately,
in recent weeks we have added to the list the war in the Middle East and the still
unknown consequences of the Red Sea crisis.
These shocks have clearly raised new questions about the future of globalisation and
the growing importance of geopolitical factors in economic relationships.
In this sense, although globalisation of the good trade was already slowing before the
pandemic, concerns about the resilience of global value chains and the security of the
supply of strategic products are now becoming more apparent.
This is particularly relevant for countries as open as the European Union, which is
probably the most open region in the world. In 2019 the share of foreign trade in the
EU's GDP reached 54% after increasing significantly, a percentage that is double the
figure for the United States (26%). Let me give you another figure: the share of global
value chain participation in trade is around 20 pp higher in the European Union than in
the United States. The same conclusion can be reached if you look at financial figures,
such as the stock of gross external assets and liabilities relative to GDP, which is again
higher for the European Union than for the United States.
We are more open and, therefore, more dependent, so we have to be particularly
concerned about the potential risks that could arise from changing patterns in
globalisation if these changes do not take place in an orderly manner.
In the global context, beyond the European Union, these concerns are driving decisions
made by firms and governments alike. Governments are increasingly concerned that, in
this new scenario, trade and financial openness could create excessive dependencies
on third countries. Accordingly, they are trying to respond to this new environment and
have moved geopolitical considerations higher up in their agendas with policies
seeking, precisely, to limit external vulnerabilities.
In this new globalisation context, governments and firms could be moving towards a
scenario where they favour diversification over dependence, security over efficiency, or
regionalisation over globalisation.
****
Against this background, external statistics, which have traditionally been crucial to
monitor the health of open economies, are again becoming increasingly important, as
they are key to supporting more informed decisions by policymakers to pursue the most
efficient strategies.
I am afraid that the statistical community is once again under strong pressure to keep
statistics fit for purpose. You will need to make a tremendous effort to keep up with
these developments and find solutions to the growing demand for information.
This brings me back to the objective of the conference: discussing how to deal with new
analytical challenges in order to keep external statistics fit for multiple needs. With this
aim in mind, key conceptual and practical issues relating to international accounts will
be explored over the next two days.
Two coordinated global initiatives illustrate the relevance of the issues on the agenda:
the revision of the International Monetary Fund's Balance of Payments and International
Investment Position Manual (coordinated with that of the UN System of National
Accounts) and the G-20 Data Gaps Initiative 3.
The issues addressed by these two initiatives are manifold. The fragmentation of
multinational enterprises' (MNEs) production processes across the globe and its impact
on the exchange of intellectual property products, the expansion of digital trade and the
greater complexity of financial flows are just a few of the challenges that complicate the
work of statistical authorities around the world.
It is becoming increasingly difficult to disentangle who the ultimate investors are, as
they are lost in a long string of transactions around the globe. This can have serious
implications for analysing financial stability in our economies. We might be more
vulnerable and more exposed to certain economies and to certain instruments than we
might at first think. Providing more insight into non-bank financial intermediation, climate
change or the informal economy are also novel challenges for external statistics
producers, but the list goes on. There are a number of interrelated issues involved, all
of which require analysts to manage and receive more information from external
statistics compilers, as well as more complex quality assurance processes.
It seems that prioritisation will be a central issue in the practical implementation of the
new editions of the statistical standards. And for this prioritisation, I believe meetings
between users and compilers, such as this conference, are essential.
But prioritisation is not enough. In order to provide more timely and granular information
to analysts and policy-makers while keeping the burden on compilers and reporters
reasonable, further modernisation and efficiency gains are essential.
To gain efficiency, better use must be made of existing information. Access to private
sector and administrative data and data sharing mechanisms between statistical
agencies, both at national and international, level are key.
In this regard, tax records, social security data, credit card data or mobile phone data
have proved to be very useful in complementing surveys and other traditional data
sources during the COVID pandemic.
These tools bring to the discussion new partnerships for the production of statistics
(private-public or public-public) and call for strengthened collaboration between national
statistical offices and central banks.
Confidentiality barriers should be knocked down by revising related regulations and
making use of the best technological solutions. Promoting the extensive use of the
Legal Entity Identifier (LEI) is also an important objective that would facilitate the
identification of counterparties and thus data-sharing at the international level.
Efficiency and data-sharing leads me to the important measures that we must forge
ahead with to make granular information available to researchers through data
laboratories and thus multiply the usefulness of the enormous amount of information
that we handle.
In this regard, national central banks and other authorities need to coordinate to make
microdata from complementary sources available to researchers. Let me provide an
example. I consider it of the utmost importance that the analysis of trade flows in goods
and services - based on data that are largely in the hands of statistical institutes and
tax authorities - be combined with that of the financial variables closely monitored by
central banks and, particularly, with data on foreign direct investment. These are
complementary areas whose analytical potential would be multiplied enormously if trade
and finance data could be made available at the microdata level.
Another aspect of data-sharing relates to the idea of collecting the information only
once and consistently. We are trying to move in this direction as regards reporting by
credit institutions with the Integrated Reporting Framework (the so-called IReF), which
will harmonise, standardise and integrate existing ESCB requirements for collecting
statistical information from banks across statistical domains and countries.
Likewise, one might ask whether a similar approach could be used for multinational
enterprises. Indeed, MNEs need to report a large amount of information in different
regions, in compliance with different reporting regulations. Any effort to standardise
such reporting would surely imply a lower burden on these enterprises and result in
more consistent and better quality information for the authorities and, ultimately,
sounder assessment and policy analysis.
***
All in all, high-quality and timely external statistics that also minimise the burden on
reporting institutions are essential. I hope you will be able to rise to the many
challenges that lie ahead and ensure that these data are fit for the high purposes for
which they are needed. I wish you a pleasant stay in Madrid and a very fruitful
conference.