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Spanish Economy Entering a ‘Virtuous Circle’

Spanish Economy Entering a ‘Virtuous Circle’Spanish Economy Entering a ‘Virtuous Circle’

Spain has emerged from a devastating crisis and entered a “virtuous circle” with faster growth than its neighbors, but the IMF warns that high unemployment and the rise of populist parties still  threaten the recovery.

The International Monetary Fund (IMF) raised its growth forecast for just two nations – Spain and the United States – in its gloomy quarterly World Economic Outlook report released on Tuesday that lowered global growth forecasts, AFP reported.

It predicts Spain’s economy will expand by 2.0 percent this year, in line with the Spanish government’s forecast, up from the 1.7 percent growth it projected in October.

The IMF left its 2016 forecast of growth unchanged at 1.8 percent.

“There has been a substantial improvement in competitiveness, due both to an increase in productivity and to a decrease in wages. So, exports in Spain are doing well. That’s helping,” IMF Chief Economist Olivier Blanchard said after the report was released.

  Economy in Chaos

Spain, the eurozone’s fourth-largest economy, was plunged into chaos in 2008 when the global financial crisis hastened a correction that was already under way in its once-buoyant property sector.

The country has since 2012 introduced major reforms of its labor laws which make it easier for employers to lay off workers or reduce wages which has “greatly improved its competitiveness”, economist Jesus Castillo of French investment bank Natixis told AFP.

Consumer spending also increased last year as Spaniards became more optimistic about the economy with retail sales up over Christmas.

“These two factors have the effect of increasing growth,” said Blanchard.

“In situations like this, there is a virtuous circle to it, which is more confidence in the future leads to more investment, more consumption.”

  Joblessness

The slump in the euro currency has made exports from Spain to markets outside the eurozone cheaper while a drop in oil prices has also helped give the country, which imports 80 percent of its energy, a boost.

Economy Minister Luis de Guindos estimates falling oil prices could save Spain up to 15 billion euros ($17 billion) this year.

He told private television Antena 3 on Friday that his conservative government – which is facing a year-end general election – may raise its 2.0 percent growth forecast for 2015.

But, Spain’s sky-high jobless rate remains a major drag on the country’s economic turnaround, said Castillo.

“Can we say that the crisis is over? No,” he said.

Joblessness fell to 23.7 percent last year from 25.7 percent as Spain’s large services sector took on more staff, driven by a strong tourist season, the National Statistics Institute said Thursday.

But the rate remains the highest in the European Union after Greece, and the International Labor Organization predicts it will remain above 20 percent  until the end of the decade.

Financialtribune.com