Yves Nosbusch 




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 Spanish Spring  dotted

Spain has been doing better since last year. GDP growth could strengthen to 3% this year after 1.4% in 2014. Most importantly, there are clear signs of improvement in the labour market. Furthermore, companies are having a much easier time obtaining financing and the Spanish export sector is in a good position to benefit from the weaker euro.


Labour market reforms

Spain was one of the countries hit hardest by the crisis. Following the collapse of the country's real estate market, it has seen a dramatic increase in unemployment since 2007. The unemployment rate rose from 8% in 2007 to 27% in 2013. Young people have had a particularly hard time: the unemployment rate among those aged 20 to 24 was more than 53% in 2013. Faced with such a drastic situation, Spain has taken action. In 2012, the country implemented extensive labour market reforms. The reforms were designed to give greater wage flexibility and make it easier to hire and fire workers. In addition, changes introduced more recently facilitate the use of part-time contracts.


Since the reforms were carried out, companies have significantly boosted their hiring, although in many cases the new jobs have come with part-time or temporary contracts. Overall, job growth recently climbed to nearly 2.5% (Chart 1) and unemployment has started to decline gradually. The renewed job growth has caused private consumption to pick up as well. Household consumption rose by 2.4% in 2014. The latest confidence data show that consumer sentiment has improved markedly.


Growth of employement and consumption

Sources: Macrobond, BGL BNP Paribas



Business financing conditions

Businesses are also operating under much more favourable conditions than they were a year ago. On the one hand, the ample liquidity supplied by the European Central Bank has made it much easier to obtain financing, especially for small and medium-sized companies (SMEs). For example, the average interest rate on new loans of under €1 million (with maturities of 1 to 5 years) has fallen to around 3.5%. In 2012, the rate was over 6.5% (Chart 2). Unlike in Italy, Spanish interest rates are moving closer to what comparable SMEs can obtain in France and Germany.



Sources: Macrobond, BGL BNP Paribas



Euro and oil price weakness

Many Spanish companies are in a good position to benefit from the steep drop in the euro. The export sector represents more than 30% of Spanish GDP, which is above the European average. Exports to countries outside the euro zone represent roughly half of all exports. Spanish exports rose 4.2% in 2014. Spain is also expected to profit more than most from lower oil prices because its energy dependence is higher than the average for the euro zone.


Even so, it is too early to declare victory. The recent rebound needs to be put into perspective. The fact that the unemployment rate is still 23.7% (48.9% for the 20-24 age group) after six straight quarters of economic growth illustrates the depth of the crisis. Maintaining robust growth for an extended period of time will require substantial investments, notably in education and training. For the 20-24 age group, for example, only 64% of the population had completed the second cycle of secondary education in 2013 (vs 79% in the euro zone).


In real terms, GDP remains 6% below the pre-crisis peak. Even though living conditions are gradually improving, they remain tough for much of the population, which has undoubtedly helped fuel the rise of opposition political parties. The recovery remains fragile and could be upset by any return of uncertainty. A key event to keep an eye on will be the general election likely to be held in late 2015.



Yves Nosbusch

Chief Economist

BGL BNP Paribas


Published in the Luxemburger Wort (in French) on 9 April 2015.