Rajoy hails Spain’s economic revival at G-20

Rajoy hails Spain's economic revival at G20

Rajoy hails Spain’s economic revival at G20

The Spanish economy is back on the path to growth thanks to a slew of government reforms aimed at pulling the country out of a deep downturn which lasted for the best part of five years. Some critics would argue that Spain should have implemented austerity measures much earlier than it did when its property sector bubble burst in mid-2007, sending many companies to the wall and the jobless rate sky-high, but there is no doubt that the country is now considered to be an example of how to survive an economic crisis and come out the other end in better shape. At last month’s G-20 Summit, Spanish Prime Minister Mariano Rajoy was asked to present his master plan for turning around an economy – a far cry from the 2012 summit, when Spain’s economic and financial woes, and the possibility it might need a bailout, were top of the agenda.

 

TOUGH REFORMS PAY OFF

Spain finally exited a two-year recession in the third quarter of 2013. Its exports sector has been a key growth driver, benefiting from increased competitiveness thanks to the government’s labour reform, which included wage moderation policies. While unpopular with trade unions and workers, these policies have made Spain a much more attractive market for foreign investors.

One example is the automobile industry, where the labour market is an estimated 40 percent less expensive than those of big car-making countries like Germany. Other harsh policies introduced by the government included a raft of fiscal measures, most notably a sharp rise in VAT, to boost state coffers at the height of the crisis. However, reforms to the labour market, pensions system and financial sector have also helped put the economy back on a surer footing.

 

FURTHER REFORMS ON THE CARDS

While Spain has come out of the shadow of a European bailout, Mariano Rajoy’s government still has many challenges ahead to ensure the country’s fledgling economic growth is sustainable. Ahead of next year’s general elections, more reforms will be needed to tackle the jobless rate – still one of Europe’s highest – as well as to boost domestic demand. This key growth component remains subdued, against a backdrop of still stagnant bank credit and timid job creation.

The government’s new fiscal policy is aimed at attracting more foreign investment. Another key goal for Spain is to continue to reduce its hefty public deficit. The budget shortfall has fallen from a double-digit peak in 2011. Meeting its public deficit forecasts for the next few years, coupled with a significant increase in job creation, will be crucial for Spain to maintain its credibility with its G-20 partners.

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

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