Spain: internal devaluation progresses and employment improves

This is in contrast with average monthly wages prior to the reform, which increased by nearly 1% y/y, even after the sovereign crisis had become more acute between 2010 and 2012.

Employment in large enterprises increased by 1.3% y/y in May (sa and wda). It was the fourth consecutive positive growth, following 31 consecutive months of negative growth in net employment (from Jul 2011 until January 2014). This positive trend is consistent also with the positive trend in the labour market data observed in social security affiliations and registered unemployment released earlier.

All in all, Barclays takes these data as positive signals for the cyclical recovery of Spain’s economy, as well as supporting the ongoing structural changes taking place in the labour market, as the process of internal devaluation continues to work through the Spanish economy. The improvement that we are observing in economic activity underscores a slight acceleration in GDP growth in Q2 vs. Q1, consistent with our Q2 growth projection of +0.5% q/q. We expect a similar pace of q/q GDP growth throughout the rest of the year.

Technical note

Large enterprises, according to the definition of the Spanish Tax Agency, are firms with at least EUR6mn of annual sales. This is a very wide definition, which encompasses medium-size enterprises following the standard European Commission’s definition (the EC definition of large enterprises correspond to firms with sales of at least EUR50mn and 250 workers). The wider definition of the Spanish Tax Agency includes a larger set of firms, accounting for two-thirds of all sales and 88% of all exports.