Spain

The sun rises every morning, which is no mean feat

Country Rating A2

Strengths

  • Good performance and competitiveness in some specific sectors
  • Presence of large international companies
  • Bridge between the world and Latin America
  • Large economy
  • Infrastructure network

Weaknesses

  • High fiscal deficit and public debt
  • High private debt
  • Weak legal system
  • Disastrous labor market
  • Poor education and training
  • Faulty territorial organization
  • Polarized politics, lack of accountability and corruption

 

Economic Overview

Pot luck

Real GDP grew by +0.7% q/q and +3% y/y in Q4 2016. Production echoed 2015 although it was below the average +3.9% recorded in the decade preceding the global financial crisis. Private consumption and exports are once more considered the engines of growth, despite a moderate deceleration. Public consumption, investment, and imports are expected to change on a similar scale as in 2016. 

Rebalancing has led to a much healthier composition of GDP. The share of construction increased from 16% to 22% between 1998 and 2007, before the housing bubble burst in 2008, resulting in construction to shrink by -38% until 2013. Collaterally, the aftermath of the housing bubble shrank tax collection by -EUR70.7bn between 2007 and 2009 and revenues are still -EUR28.7bn below the 2007 peak. Meanwhile, the share of exports in GDP increased from 23% to 32% between 2010 and 2016. Combined with the decline in imports, this has enabled Spain to benefit from a surplus in the trade balance.

Fight with cudgels

Mariano Rajoy was sworn in as Prime Minister for a second term after winning a parliamentary confidence vote. This allowed him to lead a minority government after ten months of political impasse. The new cabinet will need to build consensus across a hostile and polarized parliament to push through reforms.

Spain appears to be on track for meeting its -4.6% fiscal deficit target for 2016, down from -5.1% in 2015. The trend is largely supported by a better than expected output performance. The government submitted to Brussels an amendment on its 2017 budget to meet the -3.1% fiscal deficit target for the year, which currently falls short by +EUR7.5bn. The estimated increases of tax collection include +EUR4.65bn by limiting corporate tax deductions, +EUR850mn by raising special taxes, +EUR1.5bn by improving tax effectiveness, and +EUR500mn from fighting fraud. However, the Social Security fund is expected to run a -EUR2.6bn deficit in 2017 after having exhausted a +EUR66.8bn reserve fund within seven years.  In addition, 0.9pp should be raised in 2018 to meet the -2.2% fiscal deficit target for 2017.

Mondays in the sun

The condition of the Spanish labor market is a long-standing issue. High-skilled employment is scarce and the labor force lagged behind regarding human capital. The unemployment rate fell below 20% for the first time in six years, although it still remains the second-highest among EU members. The 30-year average exceeds 17% and the employment rate is over 15 percentage points below European top performers. 

Spain shows a marked duality in terms of protection and wages. The country also comes second in terms of the incidence of temporary contracts, which accounts for about one-fifth of employees, twice higher than the regional average. In addition, the share of involuntary part-timers (out of overall part-time employment) climbed to more than 60% in recent years.

Last review: 2017-21-09
    spain

    Spain

    A2

    GDP

    USD1,199.057bn
    (World ranking 14, World Bank 2015)

    Population

    46.418 million
    (World ranking 29, World Bank 2018)

    Form of state

    Parliamentary monarchy

    Head of government

    Mariano Rajoy Brey (centre-right), since 2011

    Next elections

    General elections 2020 (4-year term)

    Last reviewed: 22/03/17

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