Remarks by Angel Gurría,
14 March 2017
(As prepared for delivery)
Minister de Guindos, Ambassador Wert, Ladies and Gentlemen:
I am delighted to be back in Madrid to present the latest OECD Economic Survey of Spain. I would like to thank Minister Guindos for his kind invitation, and to pay tribute to the excellent collaboration between the OECD and his team during the preparation of this report.
Despite a challenging international environment, Spain offers living proof that reforms work. The economy has grown at an average rate of 2.6% over the last three years, and in the last two years it grew by 3.2%. The external balance has shown a solid surplus, despite a slowdown in the growth of worldwide exports. In 2016, Spanish exports grew by 4.4% over the previous year, more than the average of 2.4% for France, Germany, Italy and the Netherlands.
The structural reforms undertaken in recent years have restored stability to the banking sector, improved the efficiency of product markets, and helped to create employment and promote entrepreneurship. Between 2013 and 2016, some 1.2 million jobs were created in Spain.
Spain's public finances have also improved since we presented our last country report in 2014. According to our estimates, the public deficit dropped to 4.6% in 2016, thanks to strong growth and fiscal consolidation measures. We recommend pursuing greater expenditure efficiency combined with a prudent approach to fiscal management that gives more weight to environmental and consumption taxes, which place less of a burden on employment.
Despite these positive signs, there are still many outstanding challenges that must be addressed to ensure that the benefits of recovery will accrue to everyone. The most important message I want to convey today is the need to keep up the drive for reforms. It is essential that these reforms should be maintained. It is also important to reach consensus on new measures so that the Spanish economy can continue adapting to a shifting and complicated global context.
To move forward in this respect, the survey highlights three priority areas of action: (1) boosting productivity and improving the quantity and quality of investment; (2) sustaining job growth and enhancing the skills of the workforce; and (3) expanding efforts to reduce inequality and poverty. Let me share with you the main conclusions of the report in each of these areas.
If Spain is to increase incomes and create quality jobs in a sustainable way, it must address the chronic challenge of low productivity growth. For a long time, and within all sectors of the economy, capital has been invested in firms with low productivity. Between 1995 and 2007, the misallocation of capital reduced productivity growth by nearly 2% every year. Although the situation has improved recently, the levels of investment in innovation and in areas with high productivity returns, such as ICTs, remain insufficient. Private spending on R&D in Spain amounts to only 0.64% of GDP, half the OECD average of 1.3% and far below the 3.3% in South Korea.
To improve the quantity and quality of investment in innovation, public and capital market-sourced investment must be more closely attuned to the needs of new firms and entrepreneurs. A portion of public financing for R&D could be offered in the form of grants, rather than loans, so that public funding will support firms, and SMEs in particular, in their initial stage of development, when market financing is scarcer.
Reducing regulatory barriers that hold back competition and reforming the bankruptcy laws would also help to attract more foreign capital.
Reducing unemployment is still one of the main challenges facing Spain. Despite some progress – the number of persons employed has risen by 10.5% since the beginning of 2014 – the unemployment rate stood at 19% at the end of 2016, and it is still especially high (around 43%) among young people. About half of the unemployed have been in that situation for more than a year, and a third of them for more than two years. We must avoid giving rise to a “lost generation” of workers in Spain, and we can do so!
Spending on training and job placement programmes has risen, and it is increasingly focused on ensuring that people actually find a job. Yet spending on activation programmes for the unemployed population as a whole was 3.9% of GDP in Spain, compared to an OECD average of 14.5%. Activation policies must be improved both in quantitative and in qualitative terms, by increasing the number of employment service staff for each unemployed person and by making greater use of profiling tools and specialised counsellors for the unemployed. Interagency co-ordination also needs to be improved.
The other side of the coin has to do with vocational education and training for Spanish youth and adults. Although the early school dropout rate is declining, it was 20% in 2015, the highest in the European Union. More than 40% of young people are unemployed and many of them have low skills.
Our survey also stresses the need to improve the quality of teaching through better teacher training, and to redouble efforts to develop and modernise the vocational education and training system. The business sector is a key ally in this effort: it needs to offer more opportunities as part of vocational training programmes and to invest in on-the-job training and in upgrading the skills of its employees.
The third great challenge is to reduce the high levels of inequality and poverty. We must not forget that this has been the deepest crisis of our lives, and that inequality and poverty have risen throughout the OECD. But the crisis was especially harsh in this country, where millions of jobs were destroyed.
Poverty is particularly high among jobless households, especially those with children. This is reflected in the high rate of child poverty which, at 23.4%, is higher than the OECD average of 13.3%. At the same time, levels of inequality are still well above their pre-crisis levels. This is due in large part to the low wages of persons with lower incomes, for whom the gap vis-à-vis the average wage is one of the greatest in OECD countries. These are challenges that must be addressed urgently, not only for the sake of justice and equity but also because the very stability of the social contract is in question.
It is essential to ensure that the benefits of economic growth are enjoyed by everyone. For this to happen, Spain needs to expand the quantity and coverage of the regional minimum income support programmes, and to simplify the procedures to be followed by persons eligible for them. There is also a need to boost economic assistance for families with children and to improve childcare services. We welcome the recently announced creation of a working group bringing together the regional and the central authorities to assess the adequacy of existing income supports. Another crucial step will be to review the progressive nature of the tax system and of government transfers. While they are helping to reduce income inequality and poverty, in their current form they tend to benefit the highest income decile.
Ladies and Gentlemen:
In these uncertain times for the world economy, Spain should congratulate itself on its achievements, but at the same time it must sustain its reformist momentum. As Unamuno put it, "progress consists in renewing oneself".
This country has shown itself able to overcome a very delicate economic situation. The will to change and the commitment to the well-being of all Spaniards must continue to be the benchmark for action. You can count on the support of the OECD.
Thank you very much!