Spain Returns to Growth in 2014, First Time Since 2008

Spain Returns to Growth in 2014, First Time Since 2008

The country was one of the fastest-growing in the eurozone last year, behind Ireland which is estimated to have grown by 4.7% and  Germany which grew by 1.5%.

Spain returned to growth in 2014, official data showed Friday, but the recovery is far from being felt by Spaniards as unemployment remains sky-high ahead of a year-end general election.

The Spanish economy, the eurozone's fourth-largest, expanded by 1.4% last year after contracting by 1.2% in 2013, according to provisional figures from the National Statistics Office.

It is the first time there has been full-year economic growth in Spain since 2008 when a property bubble collapsed, sending millions of people out of work and pushing the country to the brink of a bail out.

The country was one of the fastest-growing in the eurozone last year, behind Ireland which is estimated to have grown by 4.7% and  Germany which grew by 1.5%.

Growth accelerated in the fourth quarter to 0.7%  from 0.5% in the third quarter as consumer spending picked up.

The provisional figures are in line with the conservative government's estimate for 2014. It predicts the economy will grow by 2% this year.

"These figures are good and they show that growth is picking up," secretary of state for the economy, Inigo Fernandez de Mesa, said during an interview with public television TVE.

Economy Minister Luis de Guindos said Monday the government's growth forecast for this year could be raised to 2.5%  if oil prices and the euro stay low.

Spain imports 80% of its energy and the government estimates falling oil prices could save the country up to 15 billion euros (US$17 billion) this year while a weaker euro makes exports outside of the eurozone cheaper.

A planned cut in personal and corporate income taxes in 2015 will also help boost growth, said Raj Badiani, an economist at IHS Global Insight in London. "Clearly, the near-term outlook is relatively bright," he said in a research note.

But the nation remains engulfed in mass unemployment which remains a drag on the economic turnaround. The jobless rate slid to 23.7% in 2014, down from 25.7% in the previous year, but was still one of the highest levels in the developed world.

The unemployment rate for those under the age of 25 stood at 51.8%.

While companies have started to create jobs again, analysts point out that the majority are low-wage, short-term contracts.

Deflation Casts Shadow

Another challenge Spain faces is deflation, said Jonathan Loynes, chief European economist at London-based Capital Economics. Consumer prices in Spain fell by a higher-than-expected 1.5%  in January, a seventh straight month of declining prices.

Falling prices may sound good for the consumer, but they can trigger a vicious spiral where businesses and households delay purchases, throttling demand and driving companies to lay off workers. 

"A deep and protracted bout of deflation could have both economic and political consequences if it both derails the recovery and leads to a further rise in the popularity of the hard-left Podemos party ahead of December's general election," Loynes said.

Podemos was formed just a year ago but has surged in the opinion polls ahead of a regional and municipal elections in May and a general election expected in November.

The statistics office will publish final gross domestic product figures for 2014 at the end of February when it will outline which sectors posted the strongest growth.

The Spanish economy has benefited from an uptick in consumer demand and a recovery in the construction sector, the Bank of Spain said in its latest economic bulletin.

It has also benefited from the arrival of a record 65 million visits from foreign tourists last year, which gave its key tourism sector a boost.

Exports were also up by 5.8% during the first 11 months of 2014 over the same year-ago period, according to the economy ministry.

"Spain has gained export market share, which could be a reflection of recent labor market reforms helping to generate improved competitiveness and productivity," said Badiani.

-Laure Fillon

Copyright Agence France-Presse, 2015

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