Let us hope this economic renaissance for Spain can end its depression

Having looked at the travails and economic woe of Italy in the Euro area it is time to look at the other side of the ledger which is the recent economic improvement in Spain. As you can see the latest official economic growth data was strong.

The Spanish economy recorded a quarterly growth of 0.8% in the second quarter of 2016. This rate is similar to that recorded in the first quarter. The growth compared to the same quarter last year stood at 3.2% compared to 3.4% in the previous quarter.

In these times sustaining an economic growth rate of over 3% is good news indeed. This new better phase for Spain began in the middle of 2013 and was such that by the beginning of 2014  quarterly economic growth was 0.4% and it ended that year with it at 0.9%. However if we use 2010 as 100 we see that in the second quarter of 2013 the level of GDP (Gross Domestic Product) had fallen to 94.6 which is a long way below the previous peak of 104.36 in the second quarter of 2014. A decline of that size over such a time period brings the phrase economic depression into play and if you think on those terms whilst the situation is much better now with the latest data being 102 you see that Spain whilst doing well currently has not regained the lost ground fully.

Inflation is low

Today’s official data tells us this.

The annual change in the CPI in September is 0.2%, three
tenths above that registered the previous month….. The annual rate of core inflation decreased one tenth to 0.8%…. The monthly variation of the general index is 0.0%.

There was a time when annual economic growth of around 3% and little or no consumer inflation was seen as a form of economic paradise. Apparently no more according to the Financial Times.

Spanish inflation disappoints as prices hold steady……The reading will disappoint eurozone-watchers who expect the single currency area to record a steady rise in inflation over the coming months,

It will not disappoint Spaniards who will welcome news like this.

Inflation was pushed down by a 2.8 per cent fall in housing costs last month, while transport and recreation costs also fell.

Appalling isn’t it? Who wants things to be cheaper? Of course as it demonstrated over the Marmite issue the FT does not seem to want them to be more expensive either! But let me point out that Spaniard who like chicken, lamb,pork and fresh vegetables will welcome the fact they  are cheaper than this time last year. They will be less keen on potatoes which have risen in price by 14.7% over the past year and are now presumably the favourite vegetable of Eurozone watchers and the ECB,

The Spanish do not use what we call CPI as their headline and the equivalent to our was also steady on the month and rising at an annual rate of 0.7%.

If we look at wage costs it is also for the best that inflation is low. These are for the second quarter of 2016.

The wage cost per worker per month increased by 0.1% and amounted to 1,943.01 euros on average.

This is an erratic series but is we compare to the same quarter in 2015 (1941 Euros) and 2014 (1929 Euros) there has been very little wage growth.

The Bank of Spain

The latest monthly bulletin is upbeat on the current state of play in the Spanish economy.

The information available on the Spanish economy points to a continuation of the expansionary course of activity, at a quarter-on-quarter rate in Q3 which is expected to be 0.7%. …In 2016 as a whole, GDP growth in the Spanish economy is expected to rise to 3.2%, an upward revision of 0.4 pp on the June projections

Also it is upbeat on the future although it cannot resist blowing its own trumpet.

In the two years spanning 2017-18, the expansion of the Spanish economy is expected to run further, continuing to be underpinned by comfortable financial conditions associated with the prolongation of the expansionary monetary policy stance, by the headway in the ongoing deleveraging by private agents (meaning that additional reductions in indebtedness have an increasingly less adverse impact on activity), and, as the projection period unfolds, by the foreseeable strengthening of export markets.

What do other surveys say?

The Markit PMI (Purchasing Managers Index) was positive about the service sector.

Spanish services activity continued to grow at a solid pace during September, supported by a faster increase in new business. Companies also remained optimistic of further rises in activity over the coming year.

Also a pick-up in manufacturing was seen.

September saw growth momentum in the Spanish manufacturing sector recover somewhat as output, new orders and employment all rose at sharper rates than in August.


This is also boosting the Spanish economy as the numbers below show.

Total expenditure on behalf of international tourists that visited Spain in August stood at 10,354 million euros, an increase of 3.8% compared with the same month last year.

There will of course be worries about whether growth from UK tourists (21% of the total so far in 2016) can be maintained with the lower value of the UK Pound. Also there does seem to have been a move from places that have had terrorist attacks.

Expenditure by tourists from France increased by 9.1%


This is a ying and yang type situation as whilst it has improved the situation is still bad.

The unemployment rate stands at 20.00%, which is one point less than in the previous quarter. In the last year the rate has fallen by 2.37 points.

Also the Bank of Spain is optimistic looking forwards.

Turning to the labour market, jobs are expected to continue to be created at a high rate during the projection period, with low growth in apparent labour productivity, as is habitual in upturns in the Spanish economy. Job creation will allow further reductions in the unemployment rate, which is expected to stand at slightly below 17% of the labour force at end-2018.

The productivity bit is troubling though isn’t it? Also there are problems with the participation rate which is flattering things.

However, in the current economic recovery in Spain, the participation rate has continued to decline, falling by slightly more than 0.5 pp to 59.4% since the employment creation process began. The pattern is particularly striking among Spanish men…

Those worried about youth unemployment will view this next bit with trepidation.

By age group, the decline in the participation rate of Spanish nationals has been concentrated among young people (16 to 24 years), although more recently it has also been observed, to a lesser extent, in the 25 to 34 age groups

The hope is that they are studying and improving themselves, the danger is that they get used to not being involved in the labour market.


The economy of Spain is in a much better phase and once again it has followed the timing of the UK improvement. On that subject there are solid links itemised by the Bank of Spain below.

In the specific case of tourism, the British economy accounts for 21% of total receipts……The United Kingdom is less important in comparative terms as a destination for Spanish goods exports (accounting for around 7% of the total)….. Spain’s bilateral commercial transactions with the UK economy yield a surplus of almost 1.5% of GDP.

As to more domestic matters I note that credit from banks to businesses has improved from the annual rate of -8% early in 2013 but is still falling. If we look at the source of “trouble,trouble,trouble” before then whilst quarterly growth in house prices was 1.8% in the second quarter of this year annual growth was a relatively sedate 3.8%.

Perhaps Spain should continue without having a government as it seems to be working out as well as it did for Belgium.



29 thoughts on “Let us hope this economic renaissance for Spain can end its depression

  1. What has happened to all of the billions of non performing loans to developers and property speculators? Have they been majicked away?

    It will be interesting to see how Spain and Portugal perform with the UK having a very weak pound. It is interesting how both have picked up in the past following a pick up in the U.K.

    The EU needs to tone down its Brexit propaganda threats in case they make things worse. They could shoot theme selves in the foot.

    • The Brexit threats may indeed shoot everyone in the foot, but these threats tell you:
      1. That they don’t care about damage done;
      2. If there is a downturn, it will be blamed on Brexit, not their spiteful ranting;
      3. The only thing that they do care about is the Project, ie the unification of Europe, not the wealth of Europe;
      4. That they have completely lost the plot as to what actually matters in life.
      When I hear Donald Tusk or that towering leader of men Juncker, I can’t help being reminded of the way young children behave when not allowed to join in on some game. They seem not to have noticed that project fear failed spectacularly in the Brexit referendum.
      There are interesting elections coming up in Austria, Italy (referendum), France and Germany and it may all look very different afterwards.

      • It does amaze me that they have learned nothing from the propaganda surrounding the referendum that backfired spectacularly! Angela Merkel, more than anyone, should know that any system that uses fear to keep its citizens in check, is ultimately doomed to failure. Her formative years were with a divided Germany and the failed experiment in eastern Germany – ruled by fear. My reading of the bellicose rhetoric coming out of the EU is that they still believe that somehow Brexit can be reversed. Either that or they are more worried than we think.

        • You are so right – today’s BBC pointed out that Donald Tusk actually hinted that maybe Brexit wouldn’t happen.
          I travel a lot to the USA and the same disconnect is seen between the liberal elite political class and normal people, which is why Trump does so well. In the USA, exactly the same game is being played where the elite produces more of their own kind (other politicians/businessmen/showbiz “celebrities”/ etc) to say how wonderful Hillary is and expect the plebs to recant.
          It doesn’t seem to work any more for large parts of the population.

      • All they want is to create USE. ‘Fear’ didn’t work in Brexit vote, I concur with your comments about US, ‘fear’ may still not work there either ( the OTT hatred of Trump by the media may rebound). The Eurocrats are increasingly relying on ‘youth of europe’ to help promote their position of a greater Germany , sorry meant USE; someone tried this before I believe….
        Most national leaders at the forefront of sabre rattling about Brexit are very unlikely to be around once negotiations are underway.

      • The Polish economy is doing much better than 20 years ago and the Poles like the EU’s freedom of movement. EU is popular in former Warsaw pact countries, it is less corrupt than the communists, has more freedom and is much wealthier. Tusk’s comments play very well to Polish voters.

        Economic convergence is nice when you’re gaining, but for many Western European eurozone countries – convergence without a depreciating national currency is painful. As you point out – this has electoral consequences

    • So, a hard Brexit, is it?
      Well with the GBP down ~ 20%, and WTO rules applied to trade (10% tariffs), UK goods will still be 12% cheaper in EU, whilst EU good will soar by 32%.
      Tusk wants hard Brexit? BRING IT ON!!!

      • where have over 70bil of non performing loans gone? I cant believe that all of a sudden they are being repaid! reclasified (i.e fudged) maybe.

  2. Entirely OT but it’s just been reported that Mark Carney has said that the BOE will tolerate an overshoot of the inflation target of 2%. Well, I’m really surprised and shocked at this, surprised and shocked I tell you!

  3. Percentages are incremental, and depend on the base.
    If Greece was to record 3.2% growth, after having its economy vandalised, there are still many, many desolate people.

    • Totally agree and yet you would be amazed at the number of Greeks who cling to the Euro like a life raft or a talisman against something even worse!

      • Yanks Varoufakis, when asked why the Greeks still cling to the Euro, said- ‘This time is banks not tanks; the people don’t want to turn the clock back 40 years’

        He actually said a lot more about what Greece used to be like – but that was the essence of it. Fear of the past!
        Things must have been really bad back then.

  4. Great blog, Shaun, as usual.
    Never heard of Mandolin Orange until 15 minutes ago, but they do the world’s newest Nobel laureate in literature proud in their cover of one of his rare Spanish themed songs:

    • Hi Andrew

      Thank you . I am having a watch/listen as I type this. More years ago than I want to admit I recall as a youth buying the album Street Legal and going to see him at Blackbushe Airport. It was an enormous crowd and camping overnight seemed a big deal at such an age.

  5. Hi Shaun,

    So Spain had a massive real estate bust and only recorded a 5.4% drop to 2010. Those statistics appear wildly inaccurate. Much of the early 2000s construction activity may not have got officially recorded. Tourism and holiday home construction do not create well paid jobs. 20% unemployment is painful. Poland unemployment is 8.5%, Czech unemployment is 5.2% and Bulgaria unemployment is 7.7% according to tradingeconomics.com

    Using rough job vacancy numbers for programmers, I note that Spain has very few vacancies per million population compared to Germany or UK. The Czech republic does much better and Poland & Bulgaria a little better. Project this forward to guess which countries will create many well paid jobs, increase employment tax receipts and add to real GDP.

    • Hi ExpatInBG

      You make an interesting point which has made me just recheck the dataset and yes it is pretty much that. The peak was in Q2 2008 at 104.36 and the nadir was in Q4 2009 at 99.54. From then Spain was growing a little but mostly flatlining until the Euro area crisis hit.

  6. I hope Spain may maintain it’s renaissance too and see no insurmountable obstacles on it’s horizon at present although it will likely be some years before it resolves it’s employment problems.

    It may be appropriate for Greece to enter into dialogue with Spain and Ireland if it hasn’t already, to establish how these countries have made their achievements and if Greece has enough similarities with these economies then to see which initiatives are likely to work for it, adopting and implementing those initiatives.

    I have to say it’s staggering the amount of posts that have hijacked this report on Spain turning it into another Brexit rant showing the hatred of and contempt for the EU disguised as a response to EU official comments, when those self same comments were responses to UK initiatives announced at the Tory conference in early October, particularly around labour market manipulation through refusing to accept unrestricted immigration but still expecting free trade when it has always been a central tenet of EU free trade that unrestricted immigration is allowed.

    That’s before I get to Conservatives talking about throwing all non UK workers out of the NHS (would there be an NHS left?) and requirements for firms to list foreign workers but not nationals on their pay roll. Yet commenters wonder why the EU is becoming equally as aggressive as the UK!

    The sheer volume of comments is suggestive of a real hidden fear amongst Brexiteers that maybe they made a mistake and brings to mind the quote from Shakespeare’s Hamlet “ The lady doth protest too much, methinks”.

    Still, as long as Brexiteers keep taking the tablets and repeating these silly arguments to themselves then through autosuggestion they will come to genuinely believe these arguments.

    The time is long overdue for the UK to get on with Brexit and stop the rhetoric, posturing and hot air production, concentrating on how it’s going to try to make a success, or at least well managed failure of Brexit and hopefully prove us Brexit sceptics wrong.

    • I do have hatred and contempt for the EU, I believe it’s the only position a decent person can have.
      I would bet that many remainiacs feel hatred and contempt for the EU, but it is subordinated to their (mistaken imv) self-interest.

    • I am sorry if you think the comments are a rant and I accept that the main article was about Spain.
      As a non-rant comment and on topic, I happen to believe very strongly that there is real hardship caused by the Euro for many southern European countries. The imposition of the Euro, in my opinion, on to countries unable to compete well with Germany, has led to:
      1. A splurge of borrowing caused by interest rates being too low;
      2. Huge unemployment, because the terms of trade gradually worsen against them and they are unable to depreciate the currency.
      Unemployment and especially youth unemployment are extraordinarily high in Spain and have been for years. While this is now dropping, which I welcome, there is a lost generation unable to make progress of any sort in their twenties and I feel that they are paying the price for political priorities trumping economic sense.

      • I think there are many problems with the Euro area and am no apologist for it. I agree #1 but would point out that the same argument applies worldwide including the UK and US which has nothing to do with Germany or the EU.

        I kind of agree #2 but would point put that there is too much reliance on depreciating our currency as a get out of jail free card. In other words it’s a cop out of doing the right thing which is the very difficult internal devaluation. All too often people can only see pay cuts and/or longer working hours as internal devaluations, but what about investment in more automation or computerisation to work smarter and faster producing more for less? That too is internal devaluation. If the workforce do not possess the skill sets to cope with new working practices then it is the Governments duty to undertake the structural reform of overhauling the education system to ensure people leave school, college and University with the correct updated skills. That of course would take time, possibly 15 years in the case of some countries.

        There is a lost generation in the UK paying the price for political priorities of Thatcher trumping economic sense. Approximately 1 million are long term unemployed most of whom are in the 45 – 55 age group and many of which have never worked. Leaving the EU will not protect us from political stupidity.

        It is up to the Spanish Government to retrain the lost generation of youth trapped in unemployment, which they may well do as the spanish economy is already turning the corner and if they look forward they will realise they need workers with new skills in the future which they can achieve through training their youth. In so doing they will become Germany’s competitor in the long run and this is the purpose of the EU – convergence.

        Finally, if the Bank of England persists in dropping rates when they should be more around circa 2% then the UK will find itself on the receiving end of hard competitive devaluation by other countries and the UK will find itself no better off then if it had adopted the Euro.

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