Spanish recovery: PM Rajoy fights to sell optimism in electoral year

Despite the economic upswing and Spaniards starting to feel it, the government of the Popular Party is losing support: the last official survey shows a 12% less of support than in 2011. GDP grew by 0.3% compared to 2013 4Q (in 3Q it went up by 0.1%, the first positive record in many months already) so it is almost certain that in the current quarter GDP will grow already in year-to-year terms. And the economists’ consensus sets 2014 annual growth between 0.7% and 1% ending with a six-year recession. Employment is causing more confusion.

2013 figures (from both Social Security and registered unemployment EPA) indicate a drop of unemployment more due to the sharp decline in the active population, those who want to work, of 306,000 people on average in 2013 (six times more than the previous year), than to jobs creation, which continued to fall (3.1% of annual average and 1.2% in the fourth quarter) but at a slower pace than in 2012 (4.5%). January figures are bad (increase in unemployment registered and 100,000 less affiliated to the higher Social security) even if it’s true that these seasonally adjusted data are less negative than before.

Greater optimism comes by the fall of European debt interest rates, especially in the peripheral countries, which has made the Spanish ten-year-bond to be of 3.7% (in July 2012 it was 7.5%) and that the risk premium has fallen below the 200 basis points. This decrease is due to an increase of confidence in Spain (a moderate reduction of the public deficit, the labour reform, increased exports and a positive external balance).

And markets have believed Mr Draghi when he said (July 2012) that they would do everything necessary “and that would be enough” to save the euro. It is important to point out that the Spanish debt is now, after many months, cheaper than the Italian, which has a serious problem of political instability. However it is more expensive than Ireland’s, a country that just came out of a bailout. This phenomenon, along with the strong inflow of foreign money, may also be due to capitals fleeing from emerging markets to come back to the battered EU periphery after the reduction of the U.S. tapering.

Another reason for optimism is that the PMI indexes throughout the Union are above 50, the dividing line between expansion and recession. Germany, of course, but now also Greece and Italy. And Spain, with a manufacturing index’s 52.2, in positive area for second month in a row while the service sector index reached 54.9, the third month in positive.

Former chief economic advisor of former PM José Luis Rodríguez Zapatero, David Taguas, says that the macroeconomic adjustment is half-baked, and deficit has been adjusted not by lowering spending, but by raising taxes and punishing public investment. The savings rate is barely recovering so growth and job creation will need to wait. In his opinion the 2014 will not destroy employment – or very little – but job creation won’t start until 2015.

Lawyer Antonio Garrigues Walker is perhaps the person who has better synthesized the situation by saying that in Barcelona that the end of recession will be slow, with little job creation. But 2015 is an election year (European elections in May are more important this year than other times) and PM Mariano Rajoy wants  to make the economy his main weapon, for what he needs citizens to see some improvements. And there are, indeed.