Research Dept. News
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Monthly Report, num 299 - February 2007
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Overall summary - Spain’s economy: never-ending growth
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Spain’s economy marks up 13 years of continuous growth thanks to drive in domestic demand.
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In its recent report on Spain’s economy, the Organization for Economic Cooperation and Development (OECD) gives the count. Spain’s economy has had 13 years of strong growth. Again in 2006, growth was higher than in the Euro Area, this time round by more than one percentage point. As in previous years, the growth drive came from domestic demand, backed by easy financing conditions. Resulting job creation was accompanied by some moderation in wage increases so that it was possible to integrate a large number of immigrants in the labour market and at the same time reduce the unemployment rate.
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Number of employed goes over 20 million for first time with construction leading job creation.
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In terms of the labour market, 2006 was another year of records. For the first time, the number of persons employed went above 20 million, according to the Labour Force Survey carried out by the National Institute of Statistics. The number of persons enrolled with Social Security also reached an all-time high. The activity rate, the relation between the number of persons working or looking for work compared with the total population of working age, continues to improve, thanks to the incorporation of women in the labour market and the inclusion of recent immigrants. Also, at the end of 2006, the unemployment rate dropped to 8.3% of the labour force, a figure close to the European Union average and the lowest since 1979.
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The sector in which employment rose most in 2006 was construction which contributed 30% to total job creation. As usual, the OECD devoted a lot of attention to the prolonged growth cycle in construction, underlining its concern about high housing prices and the dependence of the current growth cycle on construction activity. It should be noted, however, that the most recent indicators for the real estate sector point to an easing in prices and a slight downturn in sales.
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Inflationary pressures, worsening of foreign sector and stagnation in productivity remain main concerns.
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The OECD also pays some attention to the «black mark» represented by the concurrent factors of inflation higher than that of Spain’s EU neighbours, a drop in foreign competitiveness, and very meagre improvements in productivity. Inflation end the year 2006 much better than was expected in the summer at the height of the worsening pressures in the oil markets. The consumer price index reached a year-to-year rate of 2.7%, the best result in three years. Nevertheless, in terms of annual average, the growth of consumer prices was 3.5%, one decimal more than in 2005 and clearly shows the increase in the index during a large part of the year due to energy prices. What was more important, underlying inflation (excluding fresh foods and energy) was somewhat higher in 2006 on annual average. This means that the drop in energy prices does not allow us to lower our guard on the matter of inflation.
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Notable in the foreign sector was the result of the tourist season last year which showed a new high in the inflow of tourists, nearly 58 million, and a modest increase in average spending per tourist. Nevertheless, these results do not counteract concern regarding the trade deficit brought about by the loss of share in goods exports. Once more, this underlines the situation in foreign competition and the run-away current account deficit.
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Underlying the imbalances in prices and the foreign sector is the slow improvement in productivity. In its annual study, the Conference Board, the international business organization, stated that Spain’s productivity has shown losses in the past three years, a result that is a warning about the quality of growth in the recent economic cycle, centred as it is in sectors of low value added per worker. This means that the matter of shifting over from the traditional growth model to another with higher technological content, better education and competitive innovation is still an open question.
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January 26, 2007
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