Falling Unemployment Will Boost M&A Deals in Spain

Falling Unemployment Will Boost Spain M&A deals

Falling Unemployment Will Boost M&A Deals in Spain

Spain has begun to shrug off its economic woes and is on track to regain its former glory as an M&A powerhouse. So what’s behind the change in trend? Two main factors: the country has finally emerged from a two-year recession in the third quarter, and its sky-high unemployment rate is easing.

The economy grew 0.1 per cent between July and September, state statistics agency INE said on Wednesday, marking the first quarter-on-quarter expansion since the start of 2011. The preliminary figures confirmed the Bank of Spain‘s growth estimate given last week.

Spain’s economy has been shrinking or close to flat since a decade-long property bubble burst in 2008, putting thousands of companies out of business, and driving up the jobless rate, which has not fallen below 25 per cent since spring 2012.

INE said the unemployment rate slipped by 72,800 to just under 26 per cent in the third quarter from 26.3 per cent in the second, with some 5.9 million people out of work. A record tourism season helped boost Spain’s labour market over the summer.

JOB CREATION KEY TO GROWTH

Spain has the second highest jobless rate in the Eurozone, due largely to the slump in the labour-intensive construction and real estate sectors. Former drivers of economic growth, these industries have laid off millions of workers since the crisis began.

The export sector has been hailed as the new pillar of growth, and data confirmed it was behind Spain’s timid recovery in the third quarter. But can this sector create enough jobs to fuel sustained economic expansion?

Last year, the government introduced labour reform aimed at lowering unemployment. As a result, Spain’s workforce has become more competitive and flexible. Changes to labour contracts have benefited mid-sized companies, many of which are exporters in the engineering and manufacturing businesses.

Though these industries are less labour-intensive than construction, the outlook for Spain’s export sector is buoyant, and the potential for job creation significant in the long term. The government expects net job creation by 2014.

ECONOMIC RECOVERY LURES INVESTMENT

Spain’s good news is attracting foreign investment, making the prospects for future M&A in Spain rosy. The country’s blue-chip IBEX share index has risen around 20 per cent in the first ten months of the year, while international investors, such as Microsoft co-founder Bill Gates, are acquiring stakes in Spanish companies. Others, like US leisure group Las Vegas Sands, are financing projects in the hospitality sector.

What remains to be seen is whether this overseas investment drive – which will surely contribute to job creation – will also re-ignite consumer spending, still in the doldrums. Early days yet!

For information on Spain’s economy, contact corporate law firm Argali Abogados.

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