A robust economic recovery in Spain is projected to continue into 2016 and 2017, though at a gradually slowing pace as the positive impact of the depreciation of the euro, and lower oil and other commodity prices, dissipate. Low borrowing rates for businesses and households will also continue to provide support together with the fiscal stance, which is expected to be mildly expansionary over the next two years. These factors, together with the implementation of significant structural reforms, are increasing business confidence.
As public debt remains high and growth is firming, the government should resume gradual and steady consolidation to reduce the deficit and put debt firmly on a downward path. Further product market reforms and increasing innovation are crucial to boost the economy’s productivity. Reforms to improve training for the unemployed and strengthen public employment services are critical to reverse the increase in inequality since the crisis and make growth more inclusive.
Premiums paid over market prices to renewable electricity producers have induced a large increase in the share of wind and solar energy in total electricity generation. This has helped to ensure that Spain’s economy has one of the lowest greenhouse gas emissions intensities in the OECD but it came at a very high cost for the economy due to higher energy prices and rising public debt. More equal pricing of emissions across sources would reduce emissions at the lowest social cost and promote green industry and jobs.