The recovery is broad-based and firmly entrenched. It continues to make headway at a relatively rapid pace, and so far it has not shown any of the expected signs of faltering after two years in which GDP growth topped 3%. Underlying inflation is picking up slowly. Job creation continues apace, but given the specific characteristics of the crisis in Spain, there is still a very long way to go before the unemployment rate and its long-term component are back down at acceptable levels. The state of Spain’s public finances is gradually improving thanks to the boost provided by growth. The deficit will be cut to below 3% of GDP by 2018 at the latest.
Spain is now beginning its fourth consecutive year of brisk recovery. After pulling out of recession in 2014, it recorded two years of very rapid growth – 3.2% in volume terms – in both 2015 and 2016. Its pace had been expected to dip this year for three reasons. First, simply because the catch-up momentum from the crisis was bound to start faltering slightly as the output gap narrows. It expected to roughly to close during the year according to the European Commission’s (+0.2% in 2017) and the IMF’s (-1.0%) estimates, down from around -8% in 2013.
Second, because the upsurge in prices – including but not just energy prices – was always going dampen household consumption, one of the key drivers of the recovery. And third, because once it had taken office, Mariano Rajoy’s government was rapidly going to have to set about tackling the budget deficit to meet its promises to the European authorities. Together with France, Spain is one of only two eurozone countries to have a budget deficit of over 3% of GDP (-4.5% in 2016).
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by Frédérique CERISIER