Remarks by Angel Gurría
22 November 2018 - Madrid, Spain
(As prepared for delivery)
Madam Minister, ladies and gentlemen:
It is a great pleasure to be back in Madrid to present the 2018 OECD Economic Survey of Spain, which we publish every two years as an in-depth analysis of the structural challenges and opportunities of the Spanish economy. Allow me to begin by thanking Minister Calviño for her hospitality and the work and efforts of the team at the Ministry of the Economy.
The recovery of the Spanish economy has been more dynamic than most euro area economies, with a robust 3% GDP growth in the past three years. Although it is still extremely high, unemployment has fallen to 14.5% from its peak of 26% in 2013, and in the past year alone 478 000 jobs have been created. The current account has been in surplus for the past five years, signalling a more competitive economy. And the fiscal deficit has declined from its peak of 10.5% of GDP in 2012 to 3.1% in 2017, with the objective that it should fall to 2.7% of GDP this year. Congratulations!
These good macroeconomic results are in large part attributable to a wide range of structural reforms. But this by no means indicates that the work is finished. Spain is still faced with a complex environment and major challenges in terms of inequalities, the quality of the jobs created, and productivity. Moreover, risks to the global economic outlook and uncertainty are indeed rising, which is going to affect the Spanish economy. We estimate that growth will slow down to 2.6% this year, and 2.2% next year.
So let us welcome the reform drive that the Government has undertaken, with measures designed to strengthen the Spanish economy’s competitiveness and prepare it for the challenges of the future, while guaranteeing that the benefits of growth are felt by all citizens. Inclusive growth: that is what is at stake!
Spain is still grappling with the huge legacies left behind by the crisis, which now seems a distant memory but, for many Spaniards, is still just below the surface of daily life. Inequalities are high and have grown in the past few years, and the rate of child poverty has also increased sharply to reach 22%, well above the OECD average of 13%. Unemployment still particularly affects vulnerable groups, such as the youth and the long-term unemployed.
The fruits of the recovery need to be shared more fairly, and this is what the Government is trying to achieve. If growth is not inclusive and benefits only some people, citizens lose trust in the institutions, and the social contract that forms the backbone of our societies is watered down. In the case of Spain, this depends on achieving greater convergence between regions and the population in terms of income and well-being. It will also be essential that the jobs created should be of high quality.
Let me focus on some of our Survey’s key messages.
One of the thematic chapters in our report is devoted to regional disparities, which are higher than those seen in most OECD countries. The regions have extensive powers in the areas of employment, social affairs and education, and are, in turn, key to the effective implementation of national policies. Better co ordinating the services provided by each level of government and sharing best practices across regions would improve the system’s efficiency.
Moreover, increasing the mobility of workers and job-seekers across regions would help achieve a better match of supply and demand for labour. The Survey recommends full portability of social and housing benefits across regions to make it easier for people to move to where the jobs are.
There are also major regional disparities in education outcomes. Low levels of educational qualification are a barrier to development, especially in lagging regions. For instance, early school leaving rates vary considerably from one region to another: from 8% in the Basque Country to 27% in the Balearic Islands. The report recommends reforms in two main areas: first, better targeted lifelong learning policies; and second, individual student support and improved teacher training. Certain measures that have been announced, such as the stepping-up of the dual vocational training programme and its improvement, are heading in the right direction.
Another key message is the importance of good jobs as a lever for reducing poverty and inequality. Spain still needs to improve in this regard. The labour market remains segmented, with high rates of long-term and youth unemployment, and a high proportion of temporary contracts, as much as 27% in 2017. The percentage of young NEETs (Not in Education, Employment or Training) is 21.7%, compared with the OECD average of 14.2%.
The share of active labour market policy spending on training has increased but is still inadequate. The Survey recommends increasing allocations for training and job-search assistance. Improving workers’ skills and abilities and adapting their training to an increasingly globalised and digitalised market is crucial to ensure that no one gets left behind.
There is also room for more effective use of taxes and transfers. Taxation is still based on labour income, which penalises job creation. Various exemptions and rate reductions lower the efficiency of the tax system, especially as a tool for reducing income inequality.
Tax structure should be reformed to shift it more towards environment and consumption taxes and reduce flaws that have regressive effects.
The other side of the equation, besides improving wealth distribution, revolves around wealth creation. To boost growth potential, productivity-enhancing reforms are necessary. Spain has made tremendous progress in this field. The insolvency regime has been reformed, a number of measures have been introduced to increase access to finance by SMEs, and the Market Unity Law has been adopted, a great milestone to reduce regulatory fragmentation within Spain.
However, the disparity in regulations across regions is still creating barriers to achieving a truly single market, contributing to regional productivity differences. An effective implementation of the reforms addressing fragmentation of internal product markets is key to creating economies of scale.
Our report also concentrates on competition and innovation policies. Reducing the number of regulations that depend on the size of firms should be considered. The Spanish business sector is characterised by an unusually large number of small and locally-focused firms with low productivity, and there is still a large productivity gap between Spanish firms and better-performing global firms.
To be more internationally competitive it is essential to foster innovation, which calls for heavy investment in R&D. However, gross domestic R&D expenditure as a percentage of GDP in Spain is low: around half the OECD average.
Raising the quality of innovation for productivity gains calls for a stronger evaluation framework. Moreover, the co-ordination and evaluation of regional and national innovation policies need to be increased in order to avoid duplication.
Friends, looking forward, the challenge lies in fully overcoming the final legacies of the crisis years, and it will not be easy, with an increasingly complicated international environment. We encourage Spain to forge ahead with the necessary reforms to achieve more sustainable and inclusive growth. The OECD will continue to support you in your efforts to achieve the important goal of a more prosperous future for all Spaniards. Thank you.