It’s a tiny change but a significant one.
After two years of languishing in the no-growth zone, Spain’s GDP grew for the first time by 0.1 per cent in the quarter ended September (compared with the previous quarter), according to the Bank of Spain. Spain is the eurozone’s fourth-largest economy.
It’s a sign that finally, the crises — sovereign debt and credit — that have racked the continent may be finally easing. Growth was boosted primarily by improved exports and higher tourism receipts, the central bank noted. “Psychologically speaking, the rise in Spanish gross domestic product, after more than two years of contraction, marks a turning point in the eurozone crisis,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy, told Wall Street Journal.
The bad news: it’s a jobless recovery, mainly because domestic demand has still not recovered, contracting 0.3 per cent in the September-ended quarter. Deeply unpopular and heavy spending cuts and tax hikes by the government to cut its debt load have clearly kept domestic demand on a leash, offering little incentive for businesses to invest and create jobs. So don’t expect the unemployment rate — 26 per cent — one of the highest in Europe, to come down any time soon.
It’s a vicious cycle: with so many people jobless, don’t expect consumer spending to get a lift soon either. The central bank expects as much, predicting “the still-unfavourable labour market outlook and high household debt do not augur an appreciable recovery in consumption in the short run,” in its monthly bulletin.
Spain is part of the GIPSI nations – Greece, Ireland, Portugal, Spain and Italy– which fared the worst economically during the 2008-10 crisis.
It received a 41 billion euro bank bailout package in 2012 from the ‘troika’ – the European Commission, the European Central Bank and the International Monetary Fund – during the sovereign debt crisis. Despite painful austerity measures, Spain’s 2014 budget expects government total debt to hit 99.8 per cent of GDP – the highest since 1909.
Ireland and Portugal have also been making gradual progress on their wrecked economies, with Ireland looking likely to exit from its bailout in December or early next year. While no one is discounting another flare-up of problems, it does seem like the worst of the eurozone crisis is over.