Confidence in Spain improves: the challenges of
growth and job creation
The Spanish economy went into the final stretch of 2013
in its best shape for several years, and this was reflected
in its risk premium (down 400 basis points in the year),
higher share prices and a return of capital flows seeking
investment opportunities.
In the third quarter of 2013, Spain’s GDP grew by 0.1%
quarter-on-quarter, following nine straight quarters of
continuing contraction, and the unemployment rate fell
for the 3rd consecutive month. The European Commis-
sion has recently stated that the Bailout Plan for Spanish
banks can be regarded as complete
Following a long period of reforms, the figures and
market sentiment suggest that the cycle of decline has
bottomed out. Investor confidence is starting to return,
and this has been felt in the behaviour of stock markets,
which theoretically are attributed some ability to predict
or anticipation economic performance.
The only variable still lacking from the improved percep-
tions of Spain is the flow of bank lending. Lending to
households fell by around 4.2% in 2013 (-3.6% in 2012),
with lending to non-financial companies down 9.4%,
following a 7.8% decline in 2012.
Fiscal consolidation and reform: a long process
going in the right direction
The OECD has recognised Spain’s reform efforts as the
most significant of any developed economy over the last
five years. It is starting to seem that avoiding a traditional
European financial bailout -breaking the vicious circle
of sovereign risk, bank risk and recession- is becoming
possible, but there is a long way to go, and there are
many risks along the way. The public debt holdings of
the three large Spanish banks is around €107 billion, 27%
higher than year-end 2012. In addition the Public Admin-
istrations have accumulated borrowings of €55.5 billion.
In 2013, the Treasury met its financing needs from debt
auctions, with conditions improving for placements
and high deman Public debt as a share of GDP currently
stands at around 95%, but the financial burden on the
public purse over the longer term is falling. However,
according to the government Budget (Presupuestos
Generales del Estado), the Treasury will have to attract
€243.9 billion in 2014, with debt reaching almost 100%
of GDP. This level is high, but could be the upper limit for
this cycle, being similar to the ratio in France but lower
than that of Italy (130%).
The economic policy priority has been reducing the
deficit. During the year, ECOFIN approved an exten-
sion to the period for bringing Spain’s public sector
deficit below 3% of GDP. The 2013 deficit target of 6.5%,
falls to 5.8% in 2014, 4.2% in 2015 and 2.8% in 2016: in
other words, the 2.8% target previously established for
2014 has been put back 2 years. Pressure on the public
accounts has fallen, but the depression in domestic
demand, and lower average salaries (-2.5% in 2013,
according to the AEAT tax agency), have led the EU to
doubt whether these new targets will be met.
GDP (annual %)
Source: Bank of Spain and PGE’s forecasts for 2013 and 2014.
Investment (FBC annual)
GDP, Investment, Consumption and Employment in Spain
Annual change (%) in real terms
Consumption (annual % )
Employment (annual %)
The Market Environment
Report 2013
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