Spain is in an economic sweet spot with strong GDP growth in 2015 so far

On Tuesday I did an interview for Community Radio in Australia about the Portuguese economy. I explained that the decades long problem for Portugal was the fact that even in the good years economic growth struggled to average much more than 1% and that this was illustrated by it currently being 1.6%. In essence the economic and fiscal troubles it has come from that. However I noted that the Australian view was that Portugal had done better than Spain a notion I intend to dispel today as the recent experience for the Spanish economy has been a good news story.

You may be wondering about the issues over possible independence for Catalonia which could put something of a spanner in the works. In this Spain’s economic performance shows that it tends to be in phase with the UK in quite a few respects. Not only has its economy expanded more like the UK than many of its Euro area neighbours which of course poses a question for Euro area membership but it has an independence campaign in the North too as Catalonia replaces Scotland.

Economic Growth

Let us remind ourselves of the latest figures from Spain.

The Spanish economy registers a quarterly increase in volume of 1.0% in the second quarter of 2015, one tenth over that registered in the first quarter of this year (0.9%)…….GDP year-on-year growth in the second quarter stands at 3.1%, compared with 2.7% registered in the previous quarter.

The Spanish economy has been on something of a tear in 2015 so far or Boom Boom Pow as the Black Eyed Peas put it. If we look back the dark years were from 2010-13 when Spain underperformed the Euro area average followed by catch-up in 2013 and then outperformance since the beginning of 2014.

If we start at the beginning of 2014 the annual rate of increase in GDP has gone 0.6%,1.2%,1.6%,2%,2.7% and now 3.1%. What’s not to like about that? But these are the sort of numbers which can help with the debt matrices which have Portugal in a spiders web due to its inability to do the same.


The positive news is reinforced by the employment numbers.

Employment, measured in terms of full-time equivalent jobs, registered a quarterly variation of 0.9%, that is, on tenth over that registered in the previous quarter (0.8%)….In annual terms, employment registered a growth rate of 2.9%…..This evolution indicated a net increase of 477 thousand full-time jobs in one year.

Not only is this welcome for the individuals concerned but this also helps with the fiscal position as social security payments fall and tax receipts rise. Of course unemployment is still far too high but every little helps.

Looking Forwards

Standard and Poors upgraded Spain to BB+ a week ago and as part of this were bullish over future economic growth prospects. From Bloomberg.

The company expects economic growth to average 2.7 percent from 2015 to 2017, up from a previous estimate of 2.2 percent after a review in April.

In some ways that merely reflects what has happened so let us examine the business surveys. Something that has become rather familiar for September happened in manufacturing.

Although maintaining growth, the slowdown in the Spanish manufacturing sector continued in September and the average PMI reading for Q3 overall was below that seen in Q2.

If we move to the much larger services sector we see this.

While we continued to see solid growth in the Spanish service sector in September, there was a marked easing in the rate of expansion to the lowest in 2015 so far.

Again this is a familiar theme as i note the NIESR (National Institute for Economic and Social Research) put GDP growth in the UK at 0.5% in the third quarter and that the Atlanta Fed nowcast for US GDP growth is at 1.1% annualised. So we have a pattern of slowing growth as we wonder if this is merely a feature of a mature bull market or is a swing in the business cycle downwards. As I type this the Bank of France has joined this misery party by cutting its quarterly growth forecast to 0.2%.

The Bank of Spain remains optimistic.

On the conjunctural information available, GDP is expected to have increased by 0.8% in the July-September period, which would place its year-on-year rate of change at 3.4%

The fiscal position

This is not as good as you might think after looking at the economic situation which again mirrors the UK experience. From Bloomberg.

S&P said it expects Spain’s general government fiscal deficit at 4.5 percent of GDP this year, missing the government’s 4.2 percent target.

Part of that is due to the income and corporation tax cuts which the Spanish government has made in 2015 ahead of the general election. From the Bank of Spain.

On official estimates the budgetary cost of the personal income tax reform in 2015 and 2016 will be €3.87 billion and €1.57 billion, respectively, while that of the corporate income tax reform is estimated at €87 million and €2.34 billion in 2015 and 2016, respectively.

The longer-term picture for government finances depends on whether these tax cuts help to drive more economic growth in Spain but the short-term picture is awkward as whilst it is supposed to see its fiscal deficit fall below the Euro area 3% of GDP benchmark next year it now may not. The Eurocrats were hoping to celebrate their austerity poster boy/girl returning to the fiscal straight-jacket fold after being missing for 8 years and are now unsure.

For Spain the economic growth spurt has been welcome in that it had been approaching a big figure change for one of the matrices used. From the Bank of Spain.

The general government debt ratio stood at 97.7% of GDP at end-June, similar to the end-2014 figure.

All of these numbers are being helped by the QE (Quantitative Easing) program of the ECB (European Central Bank). It has so far bought some 39.3 billion Euros of Spanish government bonds including some 5.8 billion in September. This means that Spain can borrow very cheaply with its ten-year yield being 1,82%.

Is there a Euro area country that needed QE less than Spain? Also has the cheap borrowing allowed its government to relax its fiscal discipline? As ever we have more questions than answers.


This of course was the Spanish achilles heel as a housing boom was followed by a bust which dragged its banks into trouble and then the wider economy. We also get a critique of economic growth and GDP numbers as we note unused airports and empty housing developments. As to house prices they are still falling but slowly now and some areas are rebounding. Thank you to @Ibexsalad for the regional map.

The interest-rate benchmark used by the Bank of Spain for mortgages has fallen from 0.47% to 0.15% over the past year so it will be sipping a celebtraory glass of Rioja. This feeds into this.

In August, the number of property transfers registered is 123,281 properties, that is, 11.5% more than in the same month of the previous year

Nothing like the pre 2007 party but on the rise.


This has been a happy phase for Spain as it has found some sunshine in terms of economic growth. Like Ireland it continues to mirror the UK economic cycle much more than the Euro area one yet there is hardly a chorus for it to leave the Euro and join the UK Pound £. For now let us sing along to Barcelona from Freddie Mercury.

I had this perfect dream
-Un sueño me envolvió
This dream was me and you
-Tal vez estás aquí
I want all the world to see
-Un instinto me guiaba
A miracle sensation
My guide and inspiration
Now my dream is slowly coming true

Number Crunching

This has been posed by @grodaeu today.

Math quiz! Nils has monthly income of 30 000 SEK.

He wants to spend max 30% on interest.

How much can he borrow if interest rate is 0%?

I suggested that somebody asks the Riksbank of Sweden.( SEK equals Swedish Kroner).

If you really want to fry your brains then put in a negative mortgage rate!


9 thoughts on “Spain is in an economic sweet spot with strong GDP growth in 2015 so far

  1. Math quiz! Nils has monthly income of 30 000 SEK.

    He wants to spend max 30% on interest.

    How much can he borrow if interest rate is 0%?

    Unfortunately, as far as mortgages go, nothing.
    He’s paying 27 000 SEK a month rent so cannot save 200 000SEK (5%) deposit he’d need for a deposit, and his parents can’t help him as ZIRP has trashed their savings and QE their pensions, and they’re worried about having to release equity in their own home just to get by.

    • Hi therrawbuzzin

      Poor old Nils just when he thought he could buy every house in Sweden! A genuine problem though for macroprudential style policies as well as for mathematicians in trying to divide by zero.

      Sorry about the problem earlier to which I never found a specific solution although there were reports of other WordPress problems. Perhaps it was just a Ghost in the Machine.

  2. Hello Shaun

    took a while for the comments to free up!


    ” here is hardly a chorus for it to leave the Euro and join the UK Pound £ ”

    thats because the UK idiots want us to join Euro crapland

    Glad to see some umprovement – hopefuly not all imputed!

    Compared with Iceland ?



    • Hi Forbin

      Sorry about that as I have just replied to therrawbuzzin there were some WordPress problems but supposedly not that one! Anyway fixed now I hope.

      As to the improvement it follows us and on the upside has strong investment numbers and on the downside is driven by very strong. domestic demand. Whether it turns out to be a success for Euro area policy is quite a different question but for the moment it is going well.

      Meanwhile the oil price is on the move again with Brent Crude over US $53 tonight.

  3. Hi Shaun, I was going to congratullate you on making a positive report for once! BUT I noticed the reference mortgage rate and it smacks to me of flogging a dead horse – interest rate THAT LOW and still there are empty houses!! Seems the Spanish economy has not so much a black swan as a dead black swan called it’s housing market waiting to destroy it when the QE stops and M1 growth shrinks back. Suggested musical reference today is “Flogging a Dead Horse by Holly Tree, I daren’t replicate the lyrics on here but here’s the lyrical link –

    • Hi Noo2

      I wanted to be upbeat today as I like to tell a balanced story so that I have covered the Euro area current successes ( Celtic Tiger 2.0) recently as well as the more troubled (Portugal) and the disaster that is Greece.

      As to the mortgage rate I was mulling that this afternoon when there were suggestions of a future ECB interest-rate cut – the Minutes avoided mentioning a lower bound this time around- as it is 0.154% it could easily go negative should that happen. In the example above Nils could buy the world 🙂

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