Green shoots in the Spanish economy

After years of gloom following the international financial crisis and the subsequent collapse of the Spanish (national) property market, the economy of Spain could slowly be emerging out of recession into positive growth.

That such growth would, at least at first, be slow is understood, but if it comes it heralds a significant turnaround that could well mark the defining moment when Spain’s recovery began in earnest.

Many of the experts pointing to the positive are members of the ruling PP party, such as Economy Minister Luis de Guindos, who said recently that “Spain is emerging from the recession” after a meeting with finance officials in Berlin. He also claimed that Spain is doing more to resolve its deficit than any other country has done in the past ten years.

Such claims are attracting cynicism from the government’s many critics, yet while there is undoubtedly a political motive behind highlighting any positive news, figures released by the Bank of Spain seem to indicate that the worst is indeed over. The governor of the bank, Luis María Linde, is expecting a return to (slow) growth in the upcoming third quarter of this year, a message that is mirrored by the Tax Minister.

Factors supporting recovery

The factors driving the economy have been gathering slowly. We have heard so much about the collapse of the national property market, the accompanying construction sector, the malaise of the banks and also the subsequent drop in consumer spending and industrial output, but in the meantime there have been sectors whose success is now producing visible green shoots of growth.

The strong recovery of the tourist sector, the impressive performance of the agricultural sector, particularly in niche export markets, and the successful readjustment of many of Spain’s top companies from supplying the domestic market to becoming strong exporters all have spurred growth and helped the balance of payments, slowly turning Spain from an inward looking country to a more active participant on the international scene.

Add highly successful multinationals such as Inditex (Zara et al), Porcelanosa and Movistar to this mix and it becomes clear where the growth stimuli are coming from. The country’s strong position in renewable energies, its interests in the growing economies of Latin America and latterly also a slight but telling renewal of activity in the building sector, all point towards gathering momentum towards growth.

If Spain can indeed return to modest growth in the second half of this year, and more importantly, if it can sustain this growth into 2014 and beyond, then it will indeed have turned a corner. Unemployment will begin to fall – very slowly, because of the innate structure of the labour market – government revenue will begin to rise, which means the deficit should fall, and confidence will begin to seep back into the economy. The next step would be that the banks, which have been slowly recapitalised and bolstered, should gradually begin to lend again, all of which could point towards a meaningful economic recovery within the next year or two.

Pia Arrieta, 02 Sep 2013 - Intelligence