The Spanish economy improves by reaching pre-crisis values

The Spanish economy improves by reaching pre-crisis values

Spanish economic data are upgrading although there is still a wide margin for improvement in relation to employment.

After three years of growth, the Spanish economy is improving and reaching levels prior to 2008 crisis. The government forecasts for 2017 places this growth around 2.5% while the Bank of Spain estimates it around 2.8% for 2017,  2.3% in 2018 and  2.1% in 2019.

This improvement has been even highlighted by the Financial Times in a recent report. Thus, the deep crisis that Spain has lived in the last nine years seems to be left behind. Macro figures in Spain have notoriously increased: the economy has gained in competitiveness, financial conditions are favorable and domestic demand is improving, sustained by private consumption. The improvement of the situation in Spain in relation to the the crisis years, is due to five important measures:

– The labor market reform: implemented in 2012 has allowed to reduce unemployment rate from 25.77% of that year to 18.63% today. The Bank of Spain estimates the rate will continue to decline to to 14% in 2019.

– Employment growth: it has been fallen by 7.14 points in five years although this figure is still high compared to other European countries.

– Deficit cut: in five years it has fallen 5.93 points, from -10.47% of GDP in 2012 to -4.54% of 2016. At the beginning of the crisis, in 2008, the percentage was up to -4.42%.

– End of dependence of the construction sector: the housing bubble was catastrophic for the Spanish economy and deeply affected the fall of employment during the crisis. This sector’s contribution to the Spanish GDP reached up to 10% to be currently at 5%. Properties sales rebound but the danger of another bubble is far away.

– The banking system’s reform: the saving banks’ reorganisation plan has allowed the credit to flow again and to decrease both the toxic loan ratios and loan losses provisions.

These provisions guarantee a continuation of  growth in Spain in the coming years. However, to prevent an upcoming crisis, Spain still needs to eliminate structural fails. The FT highlights, among them, the still high unemployment rate and the precariousness of new employment (which doubles the EU’s average), the level of public debt (bordering on 100% of GDP, rising up to 40% since the crisis), the private sector’s low productivity, corruption and  low educational level.

Further reforms in these “black spots” of the Spanish economy should be a priority to support current levels of growth and increase them in the future. It is in the hands of the government, trade unions, companies and civil society to leave behind, for a long time, the ‘nightmare’ of the Great Recession.

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