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Spain Upgrades 2014 Economy Outlook, Sees New Jobs

Jan. 28, 2014
Economy minister said economy will grow 1% and create jobs.

MADRID -- As it emerges from five years of stop-start recession with a 26% unemployment rate, Spain predicted Tuesday a faster-than-expected economic recovery and net job growth in 2014.

Economy Minister Luis de Guindos said Spain's battered economy would generate jobs growth next year, a first since a decade-long property bubble imploded in 2008, ushering in a double-dip recession.

"In 2014, the Spanish economy will not only grow -- growth in the order of 1% is expected -- but Spain will also create net jobs," De Guindos told a conference in Brussels. De Guindos said he expected the eurozone's fourth-largest economy to expand by about 1% in 2014, compared to an official growth forecast of 0.7%.

Analysts say the big question remains whether the economy will be strong enough to create jobs for many of the 5.9 million people unemployed in the last quarter of 2013, equal to more than 26% of the workforce.

Spain's economy crawled out of recession with 0.1% growth in the third quarter of 2013. But both the government and the Bank of Spain estimate that growth picked up to a better-than-expected 0.3% pace in the final quarter, leading to the upward revision for 2014.

Prime Minister Mariano Rajoy's  government credits its tough economic reforms and austerity policies for pulling Spain back from the precipice of a full-blown bailout, widely feared in mid-2012.

"Two years ago we were on the brink of collapse but thanks to the difficult measures we took internally, the situation is now totally different," De Guindos said.

"We are beginning to see the results," he said ahead of a meeting of European Union finance ministers.

Beside slashing spending to rein in Spain's yawning public deficits, the government reformed the labour market in 2012 by cutting dismissal costs and making it easier to change work conditions.

Will Growth Generate Jobs?

But even if the economy grows by 1% or 1.5% in 2014, it still faces formidable structural problems, he said, citing a lack of jobs growth, falling house prices, bad loans in Spanish banks, rising public debt and an austerity squeeze.

"A recovery with growth of 1% with no employment is really not a spectacular result," Raj Badiani, Britain-based senior economist for research house IHS Global Insight Badiani said in an interview, warning that even Spain's encouraging export performance could suffer if emerging economies stumble.

Christian Schulz, senior economist at German private bank Berenberg, was more optimistic.

"Spain is recovering quite nicely, driven by exports and increasingly investment," he said. "Consumption is showing signs of stabilisation, but will surely remain weak due to high unemployment."

Schulz said Spain's labor market reforms would enable the economy to create net jobs even with gross domestic product growing at less than 2% a year.

Productivity had improved "massively" in Spain since 2008, he said, with labour costs falling compared to its competitors.

"Finally, the labor reforms have made it easier to fire staff. That may have aggravated unemployment in the downturn, but it should allow companies to hire confidently much earlier in the cyclical upswing," he said.

-Ingrid Bazinet, AFP

Copyright Agence France-Presse, 2014

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