The confident feeling -although relative and nuanced – that the Spanish economy is in the beginning of a complicated exit from the crisis has been boosted in the recent weeks. And the Government is determined to highlight the good data with an enthusiams that may have to do with the forthcoming European elections (where the ruling Popular Party’s victory is not guaranteed). That much enthusiasm could be counterproductive since the public opinion is still skeptical.
But two events have helped Madrid in the last weeks. First of all, the Bilbao Forum –also known as the Spanish little Davos-, where the Government, several commissioners in Brussels, big businesses and the general director of the IMF itself launched a message of optimism. Secondly, the report of the EC which takes a group of countries included Spain off the list of the most awkward and excessive imbalances.
At the bottom of that list are now Croatia, Italy and Slovenia.
Brussels dictates: “In the case of Spain, the Commission considers that in the last year there has been a significant adjustment but that imbalances will continue for some time. Imbalances are not excessive based on the indicators studied but we street that there is still substantial risk.”
It seems that the Spanish economy with the slight growth recovery (0.2 % of GDP in the last quarter of 2013, not 0.3% as provisional figures announced) has left the area of maximum danger and 2014 will be a much better year with a GDP growth of around 1%. Sales of large companies have been positive in January (and the last two months of 2013), and they had been falling since 2008.
Year 2013’s annual fall is already the lowest in the series (2.9%) although the slight recovery occurs more by exports for domestic sales. Also increase car registrations and -more relevant and more strongly- sales of commercial vehicles and buses and since the middle of last year. And the highly rated PMI index (based on extensive surveys across the EU) are above 50, the point that marks the division between recession and growth. Manufacturing are 52.4 ( 53.2 in the euro area) and 53.7 for services, even above that area.
A painful unemployment rate
Yet the most encouraging fact is employment. For months the number of jobless is decreasing, although is mainly due to Spanish citizens and immigrants leaving the country for better opportunities or discouraged unemployed who no longer receive any benefit, have stopped looking and don’t register at the employment offices.
Now it seems that January and February registered some net employment increases because there were more people entering the Social Security system over the same months in 2013. If this trend of employment is confirmed in the coming months (we must pay pattention to the Labour Force Survey for the first quarter), data could be crucial and show that internal devaluation and the subsequent decline in labor costs is having positive effects on employment and growth that both the EC and the IMF predicted.
Still, both the IMF’s chairman in Bilbao and the EC indicate that the recovery is still unfinished. Christine Lagarde said in Bilbao that “growth remains too low and unemployment too high to sing victory,” adding that “the scars of the crisis are deep and will take years to heal and job creation should be the priority.”
Lagarde called for further reform of the labor market and called for “the reduction of the tax burden on employment, especially in segments of lower wages, so that there are fewer barriers for workers to enter the labor market.” She is insisting on the general reduction in social security contributions, the exact opposite of what the government is actually doing, since it has started a camouflaged rise in social costs (affecting non-wage benefits such as transportation and school cantine’s tickets) and then decorating it with the 100-euro-flat fee for new permanent contracts Rajoy has announced. A positive but not that effective measure that is also not influenced by the net creation of permanent jobs.
Lagarde and the European Commission also note the need to reduce debt and to meet the deficit targets. Here the bottle is only half full since it is possible that the deficit target has not been met again in 2013.
Anyway the timid recovery is not fully perceived by the public opinion. The ICE, Economic Confidence Index (on a scale ranging from 0 to 100), was only 30 in February with a monthly decrease of 7.6%. And the ICC, Consumer Confidence Index (ranging between 0 and 200) was 71.5, with a decrease of 6.2 points compared to January. The perception of some economic improvement is nevertheless incontestable as the ICE has increased by 29.7% compared to February last year and the ICC gained 20.8 points.
But also much of what has been achieved -without denying the impact of adjustment measures taken by the Spanish government since May 2010- is due to the external environment (global recovery) and confidence in the survival of the euro generated by Mario Draghi and the European Central Bank.
The proof is that the differential of the Spanish 10-year bond with the German was on Monday Feb, 10 at 173 basis points, only slightly better than Italy’s 179, which has a serious political instability with no clear majority government and it has also entered the list of EU countries with excessive imbalances (Spain just left that list). And Ireland, a country that has been rescued until very recently, with its 146 basis points is better off than Spain. Sure Madrid did not have to ask for the full bailout but “only” a banking sector one, which was defined as “a credit under optimal conditions.”