Spanish economy is improving despite a growing political malaise

GDP grew at 0.7% yoy (1Q14), 1.3% yoy (2Q14) and 1.6% yoy (3Q14). The EPA pointed out that employment has grown this year by 0.8%, while the number of people registered in the social security system has grown at a higher pace: 1.5%. However salary reductions and new hiring modalities have meant that Government income has not increased. In addition, consumption patterns are slowly reviving.

The greatest concern was the increase in the trade deficit, which could lead to a new deficit in the balance of trade and further increases in external debt. Nonetheless, the fall in oil prices has been considered as an early Christmas present. We need to watch the performance of exports and imports, but the oil price provides an extra margin. Meanwhile, the ECB is charging up its batteries to fight the signs of a new European recession, which will assist the government and companies by controlling interest rates.

10-year Spanish debt has gone from an average of 5.87% in 2012 to 1.9% in early December. The spread with Germany has dropped to 110 basis points from the 430 average registered in 2012. However, this somewhat slightly sweet scenario changes completely when we look at the political landscape.

The Catalonian issue will remain frozen until after the general elections –Rajoy doesn’t want to do anything that could lose votes, and this will be a disrupting factor for politics. Podemos keeps gathering momentum while the Popular Party continues its fall and is now in third position in the polls. Thus, the possibility of a future PSOE-Podemos government is more real. This scenario is still distant and there are many circumstances that may change it, but for now, this is what most of the Spanish population wants according to the latest polls.

A PSOE-Podemos government would raise many questions. Be that as it may, the undercurrent is that Spanish citizens are really annoyed: they’ve seen how unemployment increased, how wages plumetted, how social benefits and medical services diminished, how the corruption cases (which affect the governmental party) have multiplied…

Besides, the report by legal experts regarding Bankia’s floatation on the stock market and Rodrigo Rato’s responsibility in the case has been a devastating blow. Bankia has cost €23 billion and the more we know about “black cards” for travel, alcohol, suits, hunting…, the angrier citizens get. This will have political and electoral consequences, which may be logical and fair but which will raise big and important economic doubts.

Spain’s main problem today is the 87.1%, that is, the sum of Cis’ respondents last November, who say that the first problem in the country is corruption (63.8% plus an increase of 20 points in one single month), and the other 23.3% of the population, which think that the first problem is the political class. Therefore, concerns about corrupt-politicians are 10 points higher than the unemployment issue as the major concern for Spaniards. If anyone believes this explosion will not have an impact, they are utterly wrong.

And the main problem is that neither Mariano Rajoy nor the entire leadership of the PP are right team to face this situation. Apparently, their remedy is to focus their attention on the Andalusian layoff plans and on the potential charges for Caves and Griñan. Then yes, the problem is that 87.1% of the Cis’ November survey.

About the Author

Joan Tapia
Former editor of La Vanguardia, El Noticiero Universal and Spanish public TV channel in Catalonia, Joan Tapia also advised the Minister of Economy and Finance of Spain’s first Socialist Government. One of the country’s most veteran journalists, Mr Tapia also holds a Law degree and founded La Caixa’s Information and External Relations Department. He is a regular columnist for some media outlets both in Catalan and Spanish, and a member of the Royal Academy of Economic and Financial Sciences.

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