Spain’s economy is growing over 3%. Consumer demand, driven by a series of favourable factors, is expanding at a rate of 4-4.5%, becoming the strongest component of GDP.
The construction crisis crippled the financial system and fuelled massive unemployment. Many companies disappeared and others had to make painful cuts. There was a deepening of economic inequality. Those who suffered less and managed to hold on to their wealth preferred to hoard it, keeping it safe, given the risk that Spain might not remain in the eurozone. Domestic consumption and investment were absolutely decimated.
The deterioration in domestic demand was offset by an increase in exports, while imports retreated from 2008 levels. The ECB confirmed that the euro would remain and its expansive monetary policy fuelled a decline in interest rates which was beneficial for debtors in Spain. Cheaper mortgages and the fall in oil prices meant that consumers had more available income, while the trade deficit was quickly corrected.
The large inflow of tourists, as a result of conflicts in other regions of the Mediterranean, led to a balance of payments surplus. And finally, the tax cuts in 2015 and the fact that public spending was maintained gave another boost to consumers available income.
The commitments made to implementing more adjustments, in accordance with the Stability Pact, have been postponed.
Growing domestic demand. A rise in the volume of imports while export growth is slowing, and the budget deficit is not being corrected. But there is no risk on the horizon while the price of oil does not move far from 50 dollars/barrel, interest rates remain close to zero and Brussels is not demanding we correct our budget deficit.
The risks of instability are exclusively home grown. And its nature is structural. The economic policy is not dealing with the deficit via the tax system, nor correcting the imbalance between social security contributions and taxes, especially VAT but also capital gains.
And other structural demands don’t appear to be being addressed: the Catalan issue, the ageing population, the complex administration for starting new businesses and an education system which in no way reflects the realities of an open and competitive economy.
In short, a favourable international situation which conceals the structural deficiencies. But if these were to disappear, the Spanish economy would have problems in balancing its public accounts and its financial position with the rest of the world.
*Image: Flickr / Chu 3d