Spain suffered deeply from the 2008 financial crisis. 53 banks became 5 as ‘The Great Spanish Depression’ swallowed the smaller providers. The housing bubble burst, whilst unemployment soared and the economy continued to shrink. In 2012, Spanish banks received a €100 billion bailout by its fellow Europeans, yet, with so much media attention focused on the Grexit, there is little recognition of the Spanish economy, which indeed is on the road to recovery.
Spanish banks are finally experiencing growth in profits. BBVA announced that its net profits rose by an immense 73% in the second quarter, not to mention CaixaBank and Santander to name a few. The IMF expects growth to be a remarkable 3.1% by the end of the year.
The economy has been encouraged by 2 key external economic factors – falling oil prices and a depreciating currency. Firstly, falling oil prices signifies consumers gain from reduced energy prices in concurrence with inflation rates remaining low. Secondly, a weak currency means exports become more competitive due to their low price, consequently demand rises. Indeed tourism, an export, has thrived. The first half of 2015 encountered record high levels of spending from visitors, up from 7.4% in 2014, at the same time latest data reveals the manufacturing sector has grown too.
Internally, the right-wing government, ‘Partido Popular’ has been praised for realising reforms that have encouraged the economy. Aimed at supporting enterprise, the country have in fact moved up 19 places on the World Bank’s ‘ease of doing business’ index. In terms of labour, it is now costs less to fire permanent workers in an attempt to make temporary contracts less popular, meanwhile businesses face less complex start up procedures and lower corporate-income taxes. This is most certainly one story in which a mixture of policy implementation and austerity has been the ingredients for growth.
“The Spanish economy is in a catching-up process, but definitely moving in the right direction”
Jacques Cailloux, Chief European Economist, Nomura International
Yet as Jacques Cailloux states there is a lot of levelling up to do, and so that road is indeed long and bumpy. The IMF recently warned that the economy is only predicted to continue to grow until 2016 when it will reach 2.5%. Following, it will then decline to 1.8% by 2020 due to deep structural issues that hinder further progress.
Fundamentally, unemployment still remains rife at 22.37%; a huge number in comparison to its fellow members of the OECD which average around just 7%. What is more, despite recent labour reforms, these alterations are yet to have much difference, thus new jobs still rely heavily on temporary and part-time contracts, as they remain less expensive when it comes to dismissal.
Additionally, even with years of austerity, Spain’s public finances still persist in being substandard. The European Commission forecasts the budget deficit to be a total of 4.8% of GDP this year, concurrently private and public debt is eminent in relevance to GDP too. After recent meetings the ECB announced that interest rates would remain unchanged at 0.05%, this may not be an issue in the short-run, but what for the near future?
Just as things seem to be settling, the autumn brings new opportunities for political unrest with elections due in November. Recent local elections manifest that anti-austerity parties are rapidly gaining ground, with 2 major political parties losing to left-wing factions after 40 years in power. But a radical swing to the left didn’t do any favours for Greece, so why would Spain be so different? So not all that glitters is gold, and without deep reform it may only be a matter of time before this Spanish fiesta is taken over by the ever-pervading siesta.