Factors to Growth Recovery in Spain

Factors to Growth Recovery in Spain

Factors to Growth Recovery in Spain

Spain’s economy is back on the road to recovery, driven mainly by an uptick in internal demand and a strong exports sector.

Internal demand – mostly consumption and investment – contributed positively to Spain’s GDP in the first quarter of 2014 for the first time in four years. This good news was a key factor influencing the Bank of Spain’s recent decision to raise its 2014 and 2015 economic growth forecasts.

Households have benefitted from the government’s 2012 labour reform, which included measures to create new permanent jobs in Spain’s so-called temporary contract economy. And the country posted its best job figures in September for the last eight years.

Domestic consumption increased 0.7 per cent in the second quarter of 2014, marking the fifth consecutive quarter of expansion. This growth rate has not been seen since the first quarter of 2008, just before the economic crisis began to bite. While bank credit is still restricted and the job creation rate remains timid, it seems Spaniards have decided to turn the other cheek and start spending again.

SPANISH EXPORTS DRIVE GROWTH

Last month, Spain raised its estimates for economic growth in 2014 and 2015, in contrast with countries like Italy and France that are lowering their outlook. Rising exports have been a key driving force for Spain in the last couple of years, as goods and services have benefitted from increased competitiveness due to lower unit labour costs. And the tourism industry, which is worth about 11 per cent of GDP, clocked up record-breaking figures for the first nine months of 2014, after another bumper summer season.

While the country’s external sector may be affected by the economic slowdown amongst Eurozone peers, Spanish firms will gain from their increased focus on high growth targets like South Africa and Brazil. Earlier this year, the government raised its 2014 estimate for export growth of goods and services to 7 per cent from a previous 5.5 per cent and compared with 4.2 per cent in 2013.

INVESTMENT KEY TO SUSTAINED GROWTH

Investment in capital goods rose 2.0 per cent in the second quarter from the first quarter and nearly 9 per cent from a year earlier, a clear indication that Spain’s industrial activity is regaining momentum. The government has contributed to this by encouraging entrepreneurship, providing financing and other incentives for start-ups in growth sectors like new technologies.

Foreign investment will also be crucial to guaranteeing sustained economic growth, with more M&A deals on the cards as Spanish assets across a slew of industries remain on investors’ radar. Recent fiscal reforms are expected to attract more international companies and private investors to Spanish shores.

For information on investing in Spain, contact corporate law firm Argali Abogados.

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