Spanish Economy 2021: No Grade Given (Come Back In September)

Pedro mascarilla españitaSpanish PM Pedro Sánchez at the Parliament debate

Fernando González Urbaneja | If we listen to the account from the government, the Prime Minister and his vice-presidents, the Spanish economic performance for the year just ended deserves an “A” grade. In spite of the difficulties, the external enemies, the irresponsible opposition, the uncontrolled gas, the unapologetic pandemic, the unforeseen Filomena… the Spanish economy has recovered, with resilience, with feminism, with sustainability, with environmentalism… And two objective data serve as proof: employment, measured in terms of Social Security contributors, has reached the highest levels in history: over twenty million people in work. And tax revenue is growing at double digits to obtain the highest revenue figure in history, over 200 billion euros in direct and indirect taxes.

If we listen to the opposition’s narrative, specifically that of Pablo Casado, repeated in public and private, at rallies and professional meetings, the picture is very different. Spain is bankrupt, Casado argues with data which contains the following: chronic primary deficit (amongst the highest in Europe), growing debt (120% of GDP) that is financed by the European Central Bank; insufficient growth, which means that the level of 2019, the slowest in Europe, will not be recovered.

All of the above is true and all of it is insufficient. Qualifying the performance of the Spanish economy in 2021 is a complex task; of the kind that encourages the diligent teacher to recommend the student returns in September, to continue working to improve the results in the immediate future. In favour of the recovery is European credit, tens of billions of euros applied to specific programmes that will stimulate growth. Also in favour is the foreseeable recovery of the global economy that will benefit exports. Against is the pandemic that limits tourism, production and demand.

The problem when it comes to assessing the evolution of the economy is the comparison. Contrasting the year 2021 with 2020, the year of the pandemic’s explosion, is sterile. To do so with 2019 is insufficient. And using the average of the previous cycle is too complicated.

The entire productive system, from banks to commerce, from manufacturing to services, is affected, shaken by the pandemic and by geopolitical imbalances (from the Putin factor and gas and oil prices to the disruptions of the digital revolution). A shock that is far from over and far from being concretised. Energy has become a critical issue precisely when investments in much cheaper renewables have started to mature.

International energy prices have unbalanced balances of payments, public accounts and, above all, the CPI, which appears as an unforeseen threat. Two thirds of the rise in the CPI this year is due to oil, gas and electricity prices. Passing this CPI on to production costs will complicate growth at a time when we most need growth, because growth is a necessary but not sufficient condition for democracy.

Because at the heart of this crisis is the sustainability of the political system, of open democracy that respects individual and collective freedoms. The confrontation today is not between capitalism and state socialism, but between the ability of democracies and autocracies to meet the needs of their citizens.

In this context, the Spanish economy is a minor player in Europe, although it has little influence, not even when it comes to setting an example. Spanish politics, including economic politics, is neither exemplary nor influential; it has little to offer because it is based on a political map which is unstable, polarised and lacking in ideas and commitments.

About the Author

Fernando Gonzalez Urbaneja
Over 30 years working in economic journalism. Fernando was founder and chief-editor at El País, general editor at the business daily Cinco Días, and now teaches at Universidad Carlos III. He's been president of the Madrid Press Association and the Spanish Federation of Press Associations. He's also member of the Spanish press complaints commission.