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Spanish economy pushing ahead with solid growth
THE structural reforms and budgetary policy adjustments Spain has implemented in recent years have put it on a path of robust and balanced growth, allowing the economy to push ahead while correcting its main macroeconomic imbalances, which in turn has generated more sustainable growth and made it less vulnerable to possible external shocks.
In fact, with a growth rate of 3.1 per cent, Spain's economy grew the fastest among the advanced economies in 2017, and this economic strategy is seen putting it on track for continued solid growth in the coming years, which will allow recovery in 2020 to the levels of employment seen before the economic and financial crisis of 2009.
In the "Stability Program of Spain 2018-2021" recently submitted to the EU authorities, Spain forecasts its own real GDP growth at 2.7 per cent for 2018, while IMF and OECD forecasts come in at 2.8 per cent. Growth is expected to slow slightly to 2.4 per cent in 2019 followed by a further slight moderation down to 2.3 per cent in 2020 and 2021.
Growth will continue to be sustainable and balanced, with positive contributions from both domestic demand (private consumption and investment) and external demand. Investments and exports are seen as being the most dynamic components of GDP, which will have favourable knock-on effects on productivity and the economy's growth potential. For example, exports of goods and services as a percentage of GDP increased from 21.9 per cent in 2009 to 34 per cent in 2017.
The Spanish economy is also expected to rack up a current account surplus, according to the forecast of the Stability Program, with a surplus of about 1.5 per cent of GDP during the entire forecast period. As a result, by 2021, Spain would have enjoyed nine consecutive years of current account surpluses.
The economic policy strategy, the approved structural reforms and the important process of fiscal consolidation carried out, constitute the fundamental pillars that have returned the Spanish economy to a path of sustainable and intensive growth in job creation, in a context of wage moderation and competitiveness gains.
In the last five years, 2.28 million jobs have been created and the number of unemployed has been substantially reduced, a trend that is expected to continue in the coming years, creating around 1.7 million jobs in the next four years. By 2020, the report sees employment hitting 20 million, the pre-crisis employment level.
The commitment to reduce the public deficit is maintained, going from 3.1 per cent of GDP in 2017 to a balanced budget and even a slight surplus in 2021, for the first time since 2007. This projected fiscal path would place the public deficit in 2018 at 2.2 per cent of GDP, below the threshold of 3 per cent, ending the Excessive Deficit Procedure opened by the Council of the European Union to Spain in the year 2009.
The labour market has developed due to an environment of stable prices. The CPI annual rate stood at 1.1 per cent in December 2017. On the other hand, consumer prices increased by 2 per cent after a three-year descent (-0.2 per cent in 2016) and underlying inflation rose three percentage points to 1.1 per cent.
Among the different macroeconomic measures taken for the 2018-2021 period, the following stand out: wage agreement and public employment which were reached by the government and the trade unions for the 2018-2021 period; income tax (IRPF) relief for the lower income brackets; favourable measures for families included in the IRPF; an increase in minimum pensions by 3 per cent in 2018 and a subsequent revaluation in 2018 and 2019 of all the pensions by 1.6 per cent and 1.5 per cent respectively.
Spain is the 13th biggest recipient of Foreign Direct Investment (FDI) in the world. It is trying to build on this by attracting investment from beyond its traditional European sources to Latin America (where Spain has 20 agreements for reciprocal investment promotion and protection and 17 agreements to avoid double taxation) as well as northern Africa and the Middle East. The private equity and venture capital industry is seeing current investment volumes at record highs of 4.9 billion euros (S$7.7 billion), with investments by non-resident investors in Spain-listed companies already amounting to 43 per cent of total investment.
USA, Luxembourg, the Netherlands, United Kingdom, Germany, France and China together with Hong Kong have been the largest investors over the last four years - mainly in sectors such as energy, metals and manufacturing of other materials, retail and wholesale, financial services, real estate, building and infrastructure, food and beverage and communications, software & IT services.
Furthermore, 90 of the top 100 R&D firms, according to Thomson Reuters, have a presence in Spain, as it is the country with the second most generous fiscal incentives among OECD countries. In the first five months of 2018, M&A deals amounted to 46.7 billion euros.