- POSTED: 28 Jan 2014 21:01
Spain's government upgraded the economic growth outlook for 2014 on Tuesday as the nation shook off five years of stop-start recession that have pushed the unemployment rate above 26 per cent.
MADRID: Spain's government upgraded the economic growth outlook for 2014 on Tuesday as the nation shook off five years of stop-start recession that have pushed the unemployment rate above 26 per cent.
Economy Minister Luis de Guindos told reporters in Brussels he expected Spain's economy to expand by nearly 1.0 per cent in 2014, up from an official growth forecast of 0.7 per cent.
The prediction is the latest sign of a brighter horizon for the eurozone's fourth-largest economy, plunged by a 2008 property crash into a jobs-wrecking, double-dip recession.
The big question now, analysts said, is whether the economy will be strong enough to create jobs for the 5.9 million people unemployed in the last quarter of 2013, more than 26 percent of the workforce.
Spain's economy crawled out of recession with 0.1-per cent growth in the third quarter of 2013.
Both the government and the Bank of Spain estimate that growth picked up to a better-than-expected 0.3 per cent pace in the final quarter, leading to the upward revision for 2014.
Prime Minister Mariano Rajoy's conservative government credits tough economic reforms and austerity policies for pulling Spain back from the precipice of a full-blown bailout, widely feared in mid-2012.
"Two years ago, we were on the brink of collapse but thanks to the difficult measures we took internally, the situation is now totally different," De Guindos said.
"We are beginning to see the results," he boasted ahead of a meeting of European Union finance ministers, adding that the new outlook would be reflected in official forecasts to be released at the end of April.
Beside slashing spending to rein in Spain's yawning public deficits, the government reformed the labour market in 2012 by cutting dismissal costs and making it easier to change work conditions.
Raj Badiani, Britain-based senior economist for research house IHS Global Insight, said the Spanish government's 2014 growth revision was probably justified.
Will growth generate jobs?
But even if the economy grows by 1.0 or 1.5 per cent in 2014, it still faces formidable structural problems, he said, citing a lack of jobs growth, falling house prices, bad loans in Spanish banks, rising public debt and an austerity squeeze.
"A recovery with growth of 1.0 per cent with no employment is really not a spectacular result," Badiani said in an interview, warning that even Spain's encouraging export performance could suffer if emerging economies stumble.
Christian Schulz, senior economist at German private bank Berenberg, was more optimistic.
"Spain is recovering quite nicely, driven by exports and increasingly investment," he said. "Consumption is showing signs of stabilisation, but will surely remain weak due to high unemployment."
Schulz said Spain's labour market reforms would enable the economy to create net jobs even with gross domestic product growing at less than two per cent a year.
Productivity had improved "massively" in Spain since 2008, he said, with labour costs falling compared to its competitors.
"Finally, the labour reforms have made it easier to fire staff. That may have aggravated unemployment in the downturn, but it should allow companies to hire confidently much earlier in the cyclical upswing," he said.