April 20, 2015    4 minute read

The Spanish Economy Awakens

   April 20, 2015    4 minute read

The Spanish Economy Awakens

With a fall as fast as its rise, the first eight years of this century witnessed Spanish GDP surge with an increase of 76%. Topping the growth data charts and impressing its European counterparts, what goes up must come down. The global credit crisis caused Spanish economic growth to shudder to a halt. However, it appears that Spain is back on the path towards prosperity, with one of the most dynamic augmentations of GDP in 2014. The Bank of Spain states in its trimester report of a 0.8% increase in GDP for the first third of the year, and expects 2.8% overall economic growth for the year.

The household consumption surge

The purchasing power of households is on the rise. The bout of deflation in the Eurozone is the main phenomena leading to the greatest level of household consumption of the post-crisis period. Additionally, real estate — the most damaged industry during the financial collapse — is resurrecting, with an increase in activity as reflected by the 2014 results, and a further 4.2% estimated increase in 2015.

Tourism and exports on the rise

The renewed pace in the European automobile market resulted in a 41% increase in new-car registrations in Spain last month. The automobile sector is the biggest source of exports, whence contributing to the 5.2% expected increase in overall exports. This remarkable increase must nevertheless be put in contrast with the 6.2% expected increase in imports.

Tourism has a major influence on Spain’s performance and the conflicts in the Northern Africa seem to have encouraged Spanish tourism further. 2014 was confirmed as the best year for Spain with respect to tourism, and establishes it as the third most popular country for arrivals, beating China, but behind France and the USA

The unemployed are back at work

Labour in Spain is benefiting from the profound 2012 labour reform, which enabled companies greater flexibility with respect to wage-setting and working conditions, enabling them to further reduce severance payments for dismissals.

Although the Spanish economy still has one of the highest unemployment rates of the Eurozone, 450,000 jobs were created in 2014. We however, must not neglect the insecurity the reform has brought to job contracts. The Spanish National Statistics Institute predicts unemployment will continue to decrease, albeit at a slower pace. It is not expected to go under the 20% barrier until after 2016, with an estimated 22.2% in 2015.

What’s driving the growth engine?

The QE initiation by the ECB, combined with the depreciation of the euro and the fall in the price of petrol seems to have had a clear positive impact on GDP data for Spain. Though the positive effects of the QE are undeniable, euro-sceptics maintain the stance that such policies are reducing the government’s incentives to introduce additional reforms.

What is awaiting Spain?

The government maintains the aim to reduce the deficit by 5.5% and 4.2% in 2014 and 2015 respectively, whilst increasing domestic investment. The 10 year bond yields seem to be in correlation, reflected by a decrease of 1.5 points compared to last year.

Spain’s increasing attractiveness and positive overall financial sentiment is encouraging for FDI. 2013 ended with a 9,600 million euro surplus, transforming it into the European country with most FDI received. A year-on-year increase of worldwide FDI activity until 2016 as predicted by the UN Conference on Trade and Development suggests the 2013 outstanding results are attainable in the upcoming years.

Spain will have regional and national elections later this year, with the governing party struggling to convince voters who desire change. The question on voters’ minds is one about restoring the nations prosperity for the long term. However, if the policy changes are driven by economic results as opposed to be driven by voters, then perhaps the positive growth is here to stay.

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