Spain: A Mixed Bag

On this page we present the salient features of the Spanish economy since the onset of the Great Recession in a global perspective, where the comparison is with the EU28 and the United States.

The first figures below show the path of Real GDP and its components since the recession. We have indexed all variables to the first quarter of 2008 and should thus be taken as relative measures.

GDP and Main Aggregates

 

The picture of the Spanish economy is strikingly similar to that of the Netherlands (here). While the Great Recession hit Spain quite hard, the after-shock hit Spain even harder. The down-turn it experienced starting at the end of 2010 was not only larger in relative terms, but also more persistent.

The figure above shows the year-on-year growth rate for the U.K. economy. That is the growth for 2010Q1 should be read as the Real GDP growth rate between 2009Q1 and 2010Q1. We rely on these numbers rather than annualized quarterly growth rates as we believe they paint a more reliable picture of long-run trends. Since 2012Q4, Spain gradually improved its growth numbers, returning to positive growth in 2013Q4. Despite lagging behind the U.S. and the EU28 relative to pre-recession levels, Spanish growth has outpaced both since 2015Q2.

Consumption in Spain also fell to greater degree during the after-shock than the recession itself. While it has grown at roughly the same rate as the U.S. since 2015Q2, household consumption remains below pre-recession levels.

The story is much the same for fixed capital formation: it remains roughly 25% below pre-recession levels but has grown at the same rate as the EU28 since 2013Q2.

Another bright spot for Spain has been its increase in exports following the initial drop. In fact, it has tracked exports for the rest of the EU28 almost identically. Since 2014Q1, Spanish export growth far outpaced that in the U.S., surpassing the relative level of U.S. exports in2016Q2. Imports on the other hand, have not recovered.

 

The Labor Market

Not only was the Spanish labor market hit harder than almost any other Western country, but it continues to lag behind the rest.

The combination of the Great Recession and its after-shock more than doubled Spanish unemployment. Moreover, it remains well above that in the EU28 and U.S. It should be noted that Spanish unemployment was quite high prior to 2008Q1 as well.

The labor force participation rate in Spain continued to increase throughout the recovery and has settled around 79%, where we use the labor force participation rate for individuals 20-64 years of age. For comparison, the labor force participation rate in the U.S. was 62.7% in January 2018. Most of these new workers, however, did not find employment easily. In fact, the employment to working-age population ratio continues to lag behind pre-recession levels.

Together, these pictures suggest that there are just not enough new jobs being created each quarter. Though a more direct measure of new job openings is preferable, the low job vacancy rate displayed below provides some evidence in support of this view when taken in conjunction with the above figures.

 

 

The Role of Government

Spain entered the Great Recession with a modest level of outstanding federal debt but more than doubled its debt-to-GDP ratio during its recovery.

The cause of this dramatic increase it likely a combination of two factors: increased government spending and lagged interest payments.

Following the Great Recession, government expenditures increased far more than in both the U.S. At the same time, however, interest payable for Spain continued to increase until 2014Q1, at which point it began to decline. This suggest to us that Spain had difficulty meeting its interest payments following any increases in the Federal deficit needed to increase government consumption.

It seems, however, that Spain has managed to control its ballooning debt and begin decreasing the interest payments owed.

 

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