Spain is now growing more than the euro area

Caspian Energy (CE): Mr. Montoro, do you think that Spain has overcome the crisis? What impacts on the social sphere could you note particularly? 

Cristóbal Montoro, Minister of the Treasury and Public Administrations of the Kingdom of Spain: Thanks to macroeconomic stabilization and an agenda of structural reforms, growth has resumed in Spain. In the past two years, Spain has improved its competitiveness, it is making progress in consolidating its budget as well as reversing its past macroeconomic imbalances. 

As regards fiscal consolidation, budget deficit is falling gradually from the 2009 peak of 11% to the 5.5% target this year 2014. Fiscal responsibility has been enforced with a new institutional framework and budgetary restrictions that also apply to regions and municipalities. 

As a consequence of fiscal responsibility and its concomitant effect on the current account balance, there has been a major correction in the external deficit. Current account figures have improved from roughly -10% in 2007 to -1.2 % of GDP in 2012. A current account surplus of 0.8% of GDP was reached in 2013, a positive result that had not happened since 1987. 

The external imbalance, which synthesized all the domestic imbalances, changed from borrowing to lending capacity in 2012, vis-à vis the rest of the world for the first time since 1997, standing at 0.1% of GDP in 2012 and 2.1% in 2013.  Compared to -9% borrowing needs of 2007, the correction is one of the highest in the world. This is rewarded by the markets, Spanish risk premium has declined impressively since its peak in the summer of 2012.

This correction has been possible by the firm commitment of economic policy to correct the starting point in 2012 of cumulated imbalances, taking decisions at all levels even if not politically rewarding but thinking in the medium and long term benefits. The decline in GDP reached -2.1% in 2012 and -1.2% in 2013. This adjustment was unavoidable to overcome the past situation and to recover the international credibility and attract capital. In fact, we are beginning to see encouraging results of reforms recently adopted. Measures taken on the fiscal side on expenditure reduction and on the revenue side, the structural and labour market reforms are showing now positive results on the real economy and on potential GDP.

The labor market reform tackled the main shortcomings of the Spanish economy: high structural unemployment, high youth unemployment, duality, high employment volatility and wage indexation which limited gains in competitiveness. Employment and affiliates are growing in 2014 (2.2% annual increase in September 2014) and as a consequence the unemployment rate has started its reduction path in 2014. Unemployment decline represents the main challenge now and where economic policy is focusing. Prospects are encouraging within a context of economic recovery already ongoing, with GDP expected to grow at 1.3% in 2014 and 2.0% in 2015, supported by internal demand, with consumption forecasted at 2.1% in 2015 and investment at 4.4%.