The recent economic success of Spain makes a refreshing change

Back in the days of the Euro area crisis Spain found itself being sucked into the whirlpool. The main driver here was its housing market and the way that it had seen an enormous boom which turned to dust. Pick your theme as to whether you prefer empty towns or an airport that was never used. If we look back to my post yesterday on GDP I immediately find myself thinking that developments which are never used should be counted in a separate category. Of course the housing problems also caused trouble for the Spanish banks.


We do not yet have the data for the latest quarter but in recent times short-term forecasts by the Bank of Spain have been pretty accurate.

In Spain, economic activity has continued to post a high rate of increase in recent months. Specifically, in Q4, GDP is expected to have grown by 0.7%, unchanged on the rate observed in Q3 (see Chart 1) and underpinned by the strength of domestic spending.

We do have a link in that Spain seems to follow the pattern of the UK economy more than many of its Euro area neighbours and hence there might be for once some logic in using the same currency. But the main point is that such growth would continue what has been a much better phase for Spain. This meant that the official data for the third quarter told us this.

 Growth in relation to the same quarter of the previous year stood at 3.2%,

If we look back we see that the Spanish economy was hit hard by the initial impact of the credit crunch with the peak quarterly contraction being of the order of 1.5% of GDP. Then the economy bounced back but was then sent into decline as the Euro area crisis raged and quarterly economic growth did not turn positive again until 2013 moved in to 2014. However since then economic growth has been strong. If the fourth quarter does turn out to be 0.7% then it will follow 0.7%, 0.8%,0.8%,0.8%,0.9%,0.8% and 1%. Maybe a minor fading but I think that would be harsh on a country which has put in a strong performance.

If we look back for some perspective then let us compare with what sadly is often the laggard which is Italy. From Spain’s Royal Institute.

the contrast between cumulative growths is significant: 50% since 1997 in Spain versus 10% in Italy. Moreover, according to EU forecasts, in 2018 Spain will surpass Italy in per capita GDP (in PPP terms) for the first time ever.


The Euro area crisis has been characterised by high levels of unemployment so it was nice to see this in the GDP report of Spain.

In annual terms, employment increases at a rate of 2.9%, one tenth more than in The second quarter, which represents an increase of 499 thousand jobs
Equivalent to full-time in one year.

Yesterday we got a further update on this front from Spain’s statistics agency.

Employment has grown in 413,900 people in the last 12 months. The annual rate is 2.29%……….In the last year employment has risen in all sectors: in the Services there are 240,400 more occupied, in Industry 115,700, in Agriculture 37,000 and in Construction 20,800.

Not everything was perfect as the numbers dipped by 19,400 on a quarterly basis but overall the performance has been such that we can report this.

The number of unemployed falls this quarter in 83,000 people (-1.92%) and is in 4,237,800. In seasonally adjusted terms, the quarterly variation is -3.78%. In The last 12 months unemployment has decreased by 541,700 people (-11.33%).

Or if you prefer.

The unemployment rate stands at 18.63%, which is 28 cents lower than in The previous quarter. In the last year this rate has fallen by 2.26 points.

So we have a ying of lower unemployment combined with a yang of the fact that it is still high. If we return to the comparison with Italy then according to the Royal Institute the situation is better than it first appears to be.

From 1990 to 2014 female participation has risen from 34% to 53% in Spain and from 35% to only 40% in Italy (seeWorld Bank data). Hence, although there is a much lower unemployment rate in Italy, the latter’s inactivity rate is much higher than Spain’s.

The other point I would make is that whilst it is pleasing that Spain is creating more jobs the fact that the growth rate in them is similar to the economic growth means that it too will have its productivity worries.

Looking ahead

The Bank of Spain is reasonably optimistic in its latest Bulletin.

Hence, after standing in 2016 at 3.2% (the same rate as that observed a year earlier), average GDP growth is expected to ease to 2.5% in 2017 (see Table 1). In 2018 and 2019, the estimated increase in output would stand at 2.1% and 2%, respectively.

As to the private-sector business surveys Markit tells us this about services.

Rate of expansion in activity remains marked in December

And this about manufacturing.

The Spanish manufacturing PMI signalled that the sector ended 2016 on a high, with growth back at the levels seen at the start of the year.

Fiscal Position

The situation here has been summed up by El Pais this morning like this.

After missing its deficit targets for five straight years, Spain on Thursday made a commitment in Brussels to make additional adjustments “if necessary.”

If you look at its economic performance you might be wondering if Spain got it right although of course that is far from the only issue at hand. The current state of play is shown below.

Spain believes that the tax hikes slapped on companies, alcohol, tobacco and sugary drinks, as well as rises in a range of green taxes – together with strong economic growth – will be enough to keep the deficit at 3.1% of GDP. But Brussels is forecasting 3.3% instead.

If we move to the national debt it is in the awkward situation it has breached the 100% of GDP barrier. The reason this is awkward is that as described Spain has seen good levels of economic growth and the ECB has bought a lot of Spanish government debt keeping debt costs relatively low. It has bought some 150.3 billion Euros worth so far as of the end of last week and the ten-year yield is at 1.6% meaning that in spite of recent rises debt costs are very low. Thus the ratio has risen at a time when two favourable winds have been blowing in Spain.

House Prices

As this was a signal last time I can report that as of the end of the third quarter they were rising at an annual rate of 4% so relatively moderate by past standards. However as the last quarter of 2015 saw a quarterly 0% this seems set to rise. Price rises may also be capped by the fact that the bad bank Sareb is selling off some of the stock that it inherited ( believed to be around 105,000 homes). Mind you there does appear to be considerable rental inflation if this from The Spanish Brick is any guide.

The price of rental dwellings has increased in Spain by 5.8% during the second quarter of 2016, being the price of the square meter 7.8 euros per month. On an inter-annual rate, it is an 8.5% increase, according to the main property portal in Spain. ( BankInter)


There has been plenty of good economic news for Spain in recent times and we should welcome that. After all it makes a nice change from the many down beat stories that are around. But if we use the phrase “escape velocity” so beloved of Bank of England Governor Mark Carney we see that work remains to be done. If we look back and set 2010 at 100 then GDP peaked at 104.4 in the second quarter of 2008 but only reached 102.4 in the third quarter of 2016 so another just under 2% is required to scale the previous peak. Spain will need to do that relatively quickly to prevent a type of “lost decade” but even as it does so, which I expect it to do it then looks back on a decade which overall has been a road to nowhere overall.

Should Spain continue to follow the British economic pattern then worries for the UK of rising inflation affecting the economy may have a knock-on effect. As to literal links the UK Office for National Statistics has helped out a little today.

Spain is host to the largest number of British citizens living in the EU (308,805); just over a third (101,045) of British citizens living in Spain are aged 65 years and over.

22 thoughts on “The recent economic success of Spain makes a refreshing change

  1. Shaun, it is nice to feel I contributed to this continued GDP growth for Spain. In November whilst in San Sebastian my car was towed and it cost €194 to get it back. Ill let others decide it this is a domestic product…..

    • Hi Paul

      You did indeed do your bit! Ordinarily one would subtract taxes from the GDP calculation but that is because it is a transfer within the system whereas of course you are from outside it. Although strictly speaking I guess it belongs in GNP.

  2. Whilst Spain is not in the same category as Greece and Portugal, there are still major issues to be resolved such as non performing loans and the huge number of houses built in the boom and still sitting on banks books at the value they were built at. It would appear that banks have ‘magicked them away however they must be out there somewhere!
    The drop in the value of Sterling will have a Knock on effect in Spain with fewer Brits buying property and a lower spend by tourists. This will also effect Portugal and other countries. It will be interesting to see how close this correlation is as the effect last time was quite swift to take effect. Spain and Portugal could do with an amicable Brexit that keeps the Brits coming and spending.

    • Hi Pavlaki

      I agree. Spain has had a good run but as I pointed out in the article it has yet to regain the peak pre credit crunch level of GDP. I did read that it has been building very little which is no great surprise when as you say there is so much surplus property both on the ground and on the books of the banks and Sareb.

  3. Great blog as always, Shaun. You wrote: “If the fourth quarter does turn out to be 0.7% then it will follow 0.7%, 0.8%,0.8%,0.8%,0.9%,0.8% and 1%.” So Spain may have experienced growth, from 2014Q4 to 2016Q4, at an annualized rate of 3.3%. Compare this with Canada, where, if the Bank of Canada’s Q4 forecast of 0.4% turns out to be correct, the annualized rate of growth over the same period was 1.0%. The IMF has revised its estimates of real GDP on a purchasing power parity basis for 2016. Where formerly it showed the Spanish economy being 1.0% smaller than the Canadian economy, it is now shown as being 0.1% larger. If this superior rate of growth continues for some time, there will be renewed calls for Spain to have Canada’s seat on the G-7 and on the G-20.

    • If this superior rate of growth continues for some time, there will be renewed calls for Spain to have Canada’s seat on the G-7 and on the G-20.
      In order for Canada to be in danger of losing its G20 place, it follows that it must be already outside the top 7 economies, which shows that Canada is included in the group for political, rather than economic, reasons, I’d have thought.
      More likely would be group expansion, imv.

      • Hello, therrawbuzzin. Yes, I think Canada has been grandfathered to keep its position in the G-7, if not the G-20. We are still the 16th largest economy after all. However ahead of us in the list of middle-income democratic countries are Russia (6th), Brazil (7th), Mexico (11th), South Korea (13th) and Spain (15th). Arguably Russia isn’t democratic enough to qualify, which is why there is no longer G-8 and Mexico or Brazil aren’t rich enough, but that means that even if one replaced Russia at the G-8, instead of reverting to the G-7, it would be more logical to have it include South Korea and Spain, but not Canada. I think that is why PM Harper, while keen on kicking Russia out of the G-8, was not keen on replacing it with another country. Once that discussion started, Canada’s own position would be quite vulnerable. However, the UK is in no danger, with the 9th largest economy in the world.

  4. Hi Shaun you never fail to surprise with the diversity you bring to your postings,thank you.
    There is more chance of someone making time travel a reality than the debt laden western economies reaching the mythical escape velocity which will help them pull away from the gravitational force of the deflationary black hole .
    Figures can look temporarily comforting as they are not a true reflection of the reality of most people’s lives unemployment is very high as you point out and youth unemployment those under 25 is horrendous around 45%.
    Spain like Greece,Italy ,France,UK,USA etc have a future of rising debt ,US debt has been rising at 8-9% per annum for over 4 decades most other economies are similar ,more unemployment low wages,limited prospects for decent jobs,declining prosperity,pensions reduced or not paid.
    There is no way out of this yet we have sideshows such as Brexit centre stage when we are facing the greatest economic crisis in history.
    Mrs May running off to Washington to be Trumps poodle hoping to get a few scraps ,left overs from America First!
    Yet the con in the media goes on I was outraged at Jon Sopel’s report tonight we want to have a special relationship with a country whose leader approves of torture and wants to build walls physical and economic.

    • The other big problem faced by Spain and Portugal is the demographic shift that has and is occurring. The young, the brightest and best have left and they have a rapidly ageing population. This is particularly an issue in the ‘club med’ countries however it is something that will impact all developed countries and is now raising its head in China. The strange thing is that politicians and economic forecasters rarely factor it in to their projections.

    • Yes, yes, yes! State debt is a very big problem, along with low productivity. It’s all very well and very desirable to borrow against real productive physical assets, but to borrow to pay for the NHS, the military, social care or whatever other recurring annual expense is plain stupid. Our politicians of all kinds are wedded to spending the future income of future taxpayers, and those lucky citizens will not thank us for running up debts because we could not get our running costs equal to our state income. Only growth will disguise the problem, but we will need more and more each year to achieve that.
      There is an old canard that waddles around concerning Britain being the nth biggest economy, where n= +/- 6, which indeed it may be. But if you adjust for the size of population and our high prices, per person the number comes out at 40th! That is the real reason why we can’t afford the NHS, the trains, the military and all the rest. We are simply not productive enough.

      • It is possible to balance the books; all we need to do is to elect politicians with the testicular fortitude to raise in taxes what they wish to spend.

        • Higher tax rates without accompanying productivity increases results in greater unemployment/reliance upon state in work benefits and thence lower tax revenues along with greater Government expenditure.

          Whilst my comment above was very tongue in cheek as I don’t for one moment think we are inevitably doomed, Carys is correct where he speaks about lack of productivity. That is the nexus of the UK problem which has been created by the push to a consumption economy with no emphasis on investment, unlike China and Germany, the latter of which has an excellent health care system.

        • Jive Bunny I wish I was as optimistic as you but I see the meltdown of our economic and monetary system or WW3 as the most likely outcomes resulting from our current precarious position….deeply depressing but so are the people we have chosen to elect to high office.
          The debt can never be repaid so it either gets inflated away or defaulted on.

  5. Hmm, yes, well those bankers again! The Spanish housing market has no hope of absorbing the 1m unsold new houses that were around 5 years ago. To say nothing of the second hand ones. Where is the other side of this problem? In the banks’ balance sheets. They traditionally they simply ignore the doubtful nature of assets (debts) that are inconvenient, perhaps for a decade, perhaps more because dilution by inflation is not very rapid right now. I don’t know how many houses have now been sold but I bet it’s not the entire 1m, and in my area of Spain, building has got going again, though not at the crazy pace that we saw pre-2008.
    The banks need to come clean about their NPL’s and make full provision for them. It’s no use just ignoring them; many of the unsold houses and flats have been empty so long that they will now need refurbishing before a (very) hypothetical sale.
    Bankers are not a very trustworthy breed, and that especially goes for Spanish ones. Check out the potential total write-off. Say 600k houses at €100k Euros construction cost each = €60bn. Whole EU countries have Brussels and the IMF round their necks for that kind of sum.

  6. I know it is a ludicrous and insane thing to do but I time financial markets obsessively. My timing algorithms indicate Spanish stock / property markets may do exceedingly well from late 2019 to late 2021, and maybe even till late 2022. Let’s see what the future brings 🙂 Joe.

    • Hi Joe and welcome to my corner of the web.

      I used to work with someone who believed in timing of markets although has was chart based there were timing influences in the rhythm. So maybe not a mad as you might think and even if it is, well as the world often seems mad…..

      • Hi Shaun, my untested timing algorithm comprises 20 years of experimental research and incessant back-testing as an amateur hobbyist. That alone is already quite nutty. The timing device forecasts the next big crash in late 2021 after a massive run up in equity markets between mid-2019 to mid-2021. Time will tell. Cheers. Joe.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.