Spain’s growth is less than it seems

There may be less than there appears to be to Spain's growth miracle.

Spain is "the current superstar economy of the eurozone", says Mehreen Khan in The Daily Telegraph. Four years ago it was "embroiled in one of the worst banking and house-price collapses" in the region. Now it's the fastest-growing of the big eurozone economies: over the next two years, GDP is expected to expand by 3.2% and 2.5% respectively, according to the International Monetary Fund. But there may be less than there appears to be to this "growth miracle".

Credit for the recovery is usually given to Prime Minister Mariano Rajoy's policies: reforming the banking system, shaking up the labour market and lowering corporate taxes. But the government's role in the recovery may have been exaggerated.

"Spain's recovery has been helped hugely by external factors outside Rajoy's control," writes the FT. These include a weaker euro, which has helped to boost exports, as well as the decline in oil prices and the European Central Bank's quantitative-easing policies. It's far from clear that the domestic economy is back on a solid footing: unemployment is at 22%, the highest in the EU after Greece.

What's more, Spain faces significant challenges to its political stability, says Richard Barley in The Wall Street Journal. In September, parties campaigning for the Catalonia region to become independent from the rest of the country won 48% of the vote in regional elections. Given that Catalonia accounts for one-fifth of GDP, "the fate of the region matters". Investors should treat Spain with caution until these messy politics are resolved.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Will a stronger euro ruin Europe's rally?
European stockmarkets

Will a stronger euro ruin Europe's rally?

International investors have been buying into European stocks, driving the euro higher. But that surge now risks dampening the recovery that started i…
21 Sep 2020
No deal is the best deal for Britain – and the EU too
Brexit

No deal is the best deal for Britain – and the EU too

Europe has a lot to gain from a thriving, independent Britain, says Matthew Lynn.
6 Sep 2020
Europe’s magic works better in the dark
EU Economy

Europe’s magic works better in the dark

Europe’s latest fiscal intervention looks like the kind of muddle-through that makes a United States of Europe more likely, says Merryn Somerset Webb.…
28 Aug 2020

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
James Ferguson: How bad data is driving fear of a second wave of Covid-19
UK Economy

James Ferguson: How bad data is driving fear of a second wave of Covid-19

Merryn and John talk to MoneyWeek regular James Ferguson about the rise in infections in coronavirus and what the data is really telling us.
17 Sep 2020