Spain’s economy is bouncing back
MARTORELL, SPAIN — Inside a factory as cavernous as an airport terminal, halfbuilt cars glide down the assembly line in a parade that never ends. Workers in coveralls sidle up on queue, attending to the meticulously timed tasks of turning steel into road-ready sedans.
The bustling activity at the SEAT auto factory in this industrial town just west of Barcelona attests to the new reality colouring life in Spain. The economy is growing again, expanding at around a three-percent pace over the past year, producing goods for export, generating jobs and restoring a sense of normalcy to a nation that has been saturated in despair.
This is good news not merely for Spain, but also for Europe and the rest of the global economy.
For most of the past decade, Spain has suffered as an extreme example of the economic carnage that has assailed the 19 nations sharing the common European currency. Its astonishing levels of unemployment, which peaked at 26 per cent, stood as a prominent marker of the desperation inflicted by the implosion of its real estate investment bubble, combined with the global financial crisis.
Now, Spain’s economy has returned to its pre-crisis size, according to data released by the government last week. This seemingly puts the finish to one of the worst economic catastrophes to play out in Europe in the years since the Second World War. It suggests that the continent, still grappling with formidable, even existential challenges, has finally achieved recovery.
The sense of revival is palpable along the Barcelona waterfront, where stevedores work the arms of giant cranes hoisting containers full of factory wares onto giant vessels bound for points across Europe and Asia. It infuses a crop of startup companies filling up the forlorn office spaces in major Spanish cities, where the cost of living looks more reasonable than in London or Paris.
Under one school of thought, Spain was a victim of the budget austerity imposed by European leaders in a wrong-headed effort to choke the crisis. Faced with the bursting of the real estate bubble combined with a global downturn, the government should have unleashed money on infrastructure projects to generate jobs.
Instead, rules governing the euro forced Spain to limit spending, extending the agony. Spain’s new-found global competitiveness is in large part a function of how wages have remained depressed even as jobs have returned. In this telling, Spain’s resurgence is less cause for celebration than a grim reminder of how long it took.
The pain is etched in the numbers. The unemployment rate remains above 18 per cent and is near 39 per cent for younger workers. Some 4.25 million people in a nation of 47 million are officially looking for work. Even in areas of growth, fraught labour negotiations and frequent strikes attest to the insecurity of work and the pain of diminished wages.
Others cite Spain as a validation of the revivifying powers of tough economic reforms. Spain made it easier for employers to fire workers, thus making them more willing to hire. In this telling, Spain is a useful template for France, as its new president Emmanuel Macron, girds for resistance from unions to his own labour alterations.
Spain’s economic reconfiguration is widely hailed as a key driver of growth. A decade ago, the country was hopelessly addicted to a credit-fueled construction boom that produced a shattering bust, leaving banks collapsing in the face of bad loans.
Today, construction is at half its previous weight in the Spanish economy. Exports have swelled to close to one-third from about one-fourth of the national economy.
The massive SEAT factory, part of the Volkswagen Group, is a prime example of how Spain has seen its fortunes lifted by exports. Back in 2010, the plant was losing money while producing 300,000 cars a year. Last year, it rang up profits of 153 million euros (about $172 million), making 450,000 cars and exporting more than 80 per cent of those vehicles. It has shifted to manufacturing higher-profit products like Audi sedans.
Within the whole of the Spanish economy, cars, trucks and auto parts now compose more than 17 per cent of total exports, according to the MIT Media Lab’s Observatory of Economic Complexity.
“They have become a model industry in Spain in terms of how to become successful, and reform, and compete abroad,” said Angel Talavera, a senior eurozone economist with Oxford Economics in London.
Spain’s swelling exports have aided once-struggling companies, helping restore the government’s tax revenues, which plummeted during the crisis. Barcelona’s local tax revenues have grown modestly, from 2.5 billion euros in 2013 to an anticipated yield of more than 2.7 billion euros this year.
The money is slowly flowing back into the economy.
A kilometre from the Barcelona port, workers donning safety jackets and dusty boots prepare to descend bare concrete steps to their jobs building a new subway station. Work on the long-planned expansion of the Barcelona system, a 6.8-billion euro undertaking halted some three years ago, has resumed. But a complete revival is still a ways off. The Spanish government carries enormous debt, reaching 100 per cent of the economy’s annual output, the leftover cost of paying out unemployment benefits during the crisis while also bailing out crippled banks. Government investment in infrastructure remains weak.