The Spanish economy has once again recorded a growth rate above 3% in 2017, for the third consecutive year, thanks to the adjustment of imbalances resulting from the moderation of internal costs, the reduction of the public deficit, the firm implementation of supply-side policies, and the profound restructuring carried out by the financial sector. Even so, these results would probably not have been possible without the launch of the Banking Union and without the European Central Bank acting firmly to ease tensions in the financial markets. Added to this are certain external factors, such as the improvement in global economic growth and in particular, the surprising economic momentum in the eurozone, the fall in energy prices, and a favorable evolution of the euro against the dollar.
Nevertheless, there are risks that could alter this favorable situation, among which stands out the definition of global economic policies with a markedly protectionist emphasis, as well as the impact that the possible interest rate increases expected in the United States for 2018 could generate in an environment of high indebtedness. In the Eurozone, it is worth highlighting the uncertainty generated by the normalization of monetary policy in a context in which populist proposals continue to be very attractive to a large part of the population; in this regard, the impact of Brexit will need to be assessed. In Spain, the risks threatening the sustainability of economic growth stem from high public debt and the reform paralysis brought about, in part, by the independence challenge in Catalonia.
Despite the uncertainty generated by the latent existence of this set of risks that will need to be monitored and guarded against, the progress made in recent years suggests that the current phase of economic expansion and job creation can be extended on the basis of a banking sector that, despite the multiple challenges it continues to face, is in a much healthier position than in the past to support economic growth which, for 2018, will once again be close to 3%. However, it must be taken into account that the ECB’s monetary stimulus alone is not sufficient, so it will be necessary to complement it with other measures in the fiscal sphere and with structural reforms capable of promoting a more intensive and efficient use of production factors.
In this regard, the tasks the government must face are numerous. It is urgent to address an agreement to reform the education model, modernize and diversify the production model, and adapt the foundations of the Welfare State to the change that will necessarily be brought about by technological transformation and population aging. To have the necessary resources, it will be essential to address the consolidation of public finances and the reform of Public Administrations under strict criteria of austerity and efficiency. Similarly, measures are needed to improve resource allocation and price adjustment through the strengthening of competition in goods, services, and factor markets. These measures should be accompanied by the extension of export activity to new markets with high growth potential through an administrative, regulatory, and fiscal framework that promotes the increase in the size of Spanish companies and, therefore, their competitiveness, which requires simplifying and streamlining current legislation.
Looking to the future, everything suggests that, if appropriate economic policy measures are adopted and progress continues on the path of adjusting pending imbalances and making markets more flexible, the Spanish economy will continue to generate new jobs and will be in a position to boost productivity growth.
Certainly, beyond the effort that must be made in Spain to raise growth potential and reduce the threshold from which the economy is able to generate net employment, to make the most of the advantages offered by the Monetary Union it will be necessary to complete the framework of the Banking Union with the design and approval of a European Deposit Guarantee Fund, as well as to begin with determination the budgetary integration and a common European Treasury.
Juan Carlos Delrieu, Director of Strategy and Economic Analysis of the Spanish Banking Association
