2016 will probably not go down as a year to remember. The feeling that nothing much has happened was heightened by having a lame-duck caretaker Government for most of the year. Yet fears that having no one in charge would derail the economy proved largely unfounded as Spain grew at over 3%, faster than its Euro peers. Although unemployment continued to edge downwards to below 18%, it is still painfully high, and with wages subdued, any feel-good factor is proving elusive. Madrid fared better than most – already the richest region in terms of GDP per inhabitant, it may soon overtake Cataluña as the largest regional economy.
The stock exchange has certainly not been in celebratory mood. Ending 2015 on 9,544, the IBEX35 index lost 230 points on the first day of business, setting the tone for the year. Despite recovering from its low of 7,645, it remains well below last year’s close.
Little progress was made in reducing the stubbornly high budget deficit, and Spain received a slap on the wrist from the EU. Brussels accepted that the caretaker government had its hands tied and balked from carrying out its threat of big fines. But the newly formed minority Government now needs to keep Brussels happy, and is making noises about tax hikes. With Corporation Tax receipts expected to be down 25% in 2016, companies are likely to be the first to feel the pain.
Inheritance tax is another possible target, with hints of a new national minimum to smooth over big regional differences. Close to zero in Madrid, the rumours have reportedly fuelled a spate of donations to pre-empt changes.
The Brexit vote livened things up in June, shocking one of the countries most in favour of the UK remaining in the union. The Madrid Government was quick to put out a welcome mat for any businesses looking to relocate from the UK, especially from the City.
For businesses, the picture was mixed. Banks have had a tough 12 months, and were usually in the news for the wrong reasons. Several announced job losses and branch closures – abandoned bank branches have become a common sight around Madrid. Fraud and corruption cases involving Bankia and its taxpayer-financed rescue rumbled on. Meanwhile shareholders of the engineering and construction group Abengoa won’t have fond memories of 2016 after asset write- downs led to losses of €5.4 billion. A restructuring plan was agreed which hands ownership over to banks and creditors, thus avoiding what would have been the largest insolvency of 2016.
Spain’s biggest industry – tourism – was also its star performer, on course for a record 74 million visitors. Exporters also did their bit despite weakness in many markets, and with the help of the tourists the trade balance swung into the black. Inditex Group, owner of the Zara brand, continued to show the world how to retail clothes, with half year sales up 11% to 10.5bn. Its founder Amancio Ortega was once again crowned the world’s richest man by Forbes. Not bad for someone who left school at 14.
WH Advisers – Helping international businesses to understand Spain