Why Has the Spanish Economy Remained Strong This Year?
The global economy has struggled in 2019. Quartz reports that 70% of the world’s economy is on a downturn, forcing the International Monetary Fund (IMF) to downgrade for the fourth time in nine months its global economic growth forecast. This is the most extensive synchronised slowdown since 2011, and it is being caused by US-China trade tensions, a weakening automotive sector in Germany, economic turmoil in Turkey and Argentina, and credit tightening in China, among other factors. But one country that is bucking this trend is Spain.
The Spanish economy has been strong this year continuing on from previous years. Bloomberg notes that Spain has been one of Europe’s best-performing economies, consistently outgrowing other countries since the start of 2018. That momentum has carried over to 2019, with Spain’s economy growing by 0.7% in the first quarter. It is expected to grow by 2.2% this year — twice the pace of other economies in the region. That is in spite of expected turbulence for the Spanish economy in 2019. Expectations were dampened, but growth has continued nonetheless.
The fact that Spain’s economy is performing well is testament to its resilience. After being hit hard by the financial crisis of 2008, the Spanish economy has rebounded considerably. Ironically, that same crisis may have set the country up for long-term viability. With the economy in tatters and consumer spending at a low, firms in Spain began looking overseas to sell their products. “With a shrinking domestic market, both in the private and public sector, small and medium-sized companies in particular risked going to the wall because of a shrinking domestic market,” explained William Chislett, Associate Researcher at the Real Instituto Elcano. “The only alternative they had was to go abroad and see if they could sell there, which they did successfully on the whole.” This eventually led to an export surge that has helped Spain recover from 2008. Now, this export-driven economy is outperforming its European neighbours.
This robust economy has also had a positive impact on employment. A South EU Summit report on Spain’s economic upturn states that the Bank of Spain is predicting the country’s unemployment rate to fall from 14.4% in 2018 to 12% by 2021. Reducing unemployment rates is helping boost salaries and increase purchasing power. This is on top of the increase in consumer spending, which is indicative of people’s trust in the economy. The Economic Calendar on FXCM shows how the Spanish Consumer Price Index has been experiencing very little volatility. This is a sign that the economic situation in the country is stable, and will likely remain that way. A number of factors point to such scenario. Firstly, companies are shrinking profit margins, thereby allowing consumer spending to stay steady. Secondly, Spain’s economy is getting a huge boost from tourism. In fact, it is now second only to France in terms of receiving the most number of international tourists. Finally, investors have faith in Spain’s resurgent economy. This is evident through the €108 billion worth of Spanish bonds that Mitsubishi UFJ Kokusai Asset Management recently bought.
With a contentious election now over, the challenge for the socialist PSOE is to continue this economic momentum. Many in the country are still worried about employment levels and how Brexit might affect the economy. The remaining months of the year will be crucial in demonstrating whether the country can continue at its current economic level, or whether the predictions of a turbulent year were in fact correct.
IMAGE CREDIT: PEXELS