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Contents | Executive Summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise Chapter 1 of the Economic survey of Spain published on 23 January 2007.
Contents
Despite persistently favourable economic results in recent years, risks and important challenges remain
Spain’s macroeconomic performance has remained remarkable: the country has experienced a 13th consecutive year of strong growth. This economic vitality has had the effect of narrowing the gap in per capita GDP with the euro area average from 20% to under 12% over the past decade and has also contributed to improved fiscal outturns. It has continued to be underpinned by buoyant domestic demand and spectacular employment growth based on substantial immigration, increased female labour force participation and a marked drop in unemployment. Taking advantage of still favourable cyclical trends, the authorities have rightly opted to tackle the economy’s main medium term issues:
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The stubborn inflation differential, which is continuing to erode competitiveness and helping to widen the trade deficit, highlights the need to improve the functioning of the labour and product markets so as to reduce the economy’s nominal rigidities and thereby strengthen its resilience to shocks.
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The very rapid rise in household debt and property market prices, which could jeopardise macroeconomic stability, underline the need to stabilise the housing sector and correct its dysfunctional aspects.
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From a long term perspective, reforms are still needed to ensure that the public finances remain sound, given the expected consequences of population ageing.
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Maintaining the process of income convergence with the most affluent countries will require a pick-up in productivity growth; this will involve improving the education system, catching up in terms of innovation and the use of new technologies and also eliminating the market distortions hindering the development of higher value added activities.
The National Reform Programme drawn up in 2005 by the authorities identifies these challenges and outlines a package of measures to meet them. However, in some cases the pace and ambitions of the measures introduced thus far do not appear commensurate with the problems to be overcome.
Growth has remained robust but unbalanced, despite some improvement
Economic growth has continued to edge up and is likely to have reached 3¾ per cent in 2006, over a percentage point more than in the euro area. As in previous years, the buoyancy of activity was based on very strong domestic demand underpinned by relaxed monetary conditions. The resulting substantial job creation has also been supported by real wage moderation. These trends helped not only to absorb the large numbers of immigrant workers and women entering the labour market, but also to reduce the unemployment rate to 8¼ per cent (from 19% in 1994). However, despite some progress, growth has remained unbalanced. First, although the upturn in the European countries has stimulated exports, the gradual tightening by the European Central Bank (ECB) since end 2005 has only slightly trimmed Spanish domestic demand. In particular, despite some signs of a property market slowdown, residential investment has reached 9.2% of GDP, real estate prices are still rising about 10% per year and household mortgage borrowing is growing excessively. Annual productivity gains remain modest, at no more than about 0.5%, and the inflation differential with the euro area has stayed at 1 to 1.5 percentage points, thus continuing to weaken competitiveness. While there is no problem financing the current account deficit, which may have reached about 9% of GDP in 2006, it is indicative of the scale of the strains in the economy.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded (also available in Spanish). It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Spain 2007 is available from:
- SourceOECD for subscribing institutions and many libraries
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OLISnet under "Publication Locator", for government officials with accounts ( subscribe)
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Additional information
For further information please contact the Spain Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Claude Giorno and Eduardo Camero under the supervision of Peter Jarrett.
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