Spain Sees Growth But Ruling Party Remains Unpopular

Despite optimistic growth forecasts, Spain’s ruling conservatives remain unpopular.

Traffic lights in Valencia, Spain, March 3, 2013
Traffic lights in Valencia, Spain, March 3, 2013 (Keith Ellwood)

Economic reforms are expected to deliver growth for Spain this year but with a quarter of the workforce still unemployed, the optimistic forecasts have yet to give a boost to Prime Minister Mariano Rajoy’s ruling conservative party.

Last month, the Moody’s rating agency said it expected 2.7 percent growth in Spain this year. The International Monetary Fund even sees 3.1 percent growth this year and 2.5 percent in 2016.

The IMF praised Spain’s fiscal consolidation program, saying, “These collective efforts of Spanish society are the foundation upon which the recovery has been constructed.”

Rajoy reduced Spain’s fiscal shortfall from 9.4 percent of gross domestic product in 2011 to 5.8 percent this year. Part of the savings were accomplished by cutting pensions and unemployment benefits. But the bulk of the fiscal consolidation effort involved freezing salaries in the public sector and the minimum wage and raising income, real estate and value-added taxes.

At 44 percent of economic output, Spanish government spending is still higher than it was in 2009, the year before the crisis.

Cheap oil prices and an expansionary monetary policy from the European Central Bank may have done more to raise industrial output and exports.

The car industry, one of Spain’s largest and responsible for 17 percent of exports, benefits from a cheaper euro.

An agreement between employers and unions to raise salaries 1 percent this year and 1.5 percent in 2016 — after years of stagnant wages — should also boost consumer confidence and stave off labor unrest.

Despite the high unemployment rate, strikes have been at an historic low.

Spain’s economy started recovering in 2014 after a year of recession but growth was lackluster. Unemployment, which reached a 27 percent high in 2013, has barely moved since last summer.

Youth unemployment, although on a downward trajectory, remains especially high with nearly one out of two Spaniards under the age of 26 out of work.

Hampering a jobs recovery is Spain’s dual labor market which makes workers on fixed- and long-term contracts difficult to fire while giving young workers and those on temporary contracts almost no benefits and protection.

This divide between often older and inflexible workers and youngsters who struggle to find their first job exists in other European countries, like France and Italy, as well.

The European Commission and the IMF has long urged Spain to liberalize sections of its labor market, bring protections for temp workers in line with everyone else and expand job retraining programs for those who lost work in the construction and housing industry when Spain’s property bubble burst.

Rajoy’s Partido Popular, which came to power in December 2011 with almost 45 percent support, has languished in the polls as unemployment stayed high. It has seldom polled over 30 percent since the middle of 2013.

Recent polls give the conservatives a plurality of the seats in parliament but they would probably only be able to govern in coalition with the liberal Ciudadanos — which rules out coalitions.

The opposition Socialists would get anywhere between 20 and 25 percent support in elections later this year. They would probably have to do a deal with the far-left anti-euro party Podemos to return to power.

In local elections in May, Spaniards split their vote four ways. The People’s Party and Socialists, which have alternated in power since democracy was restored in 1975, barely got 50 percent support together.

Corruption scandals involving leading figures in the prime minister’s party also took their toll.