Spain’s economy isn’t doing too badly ahead of Sunday’s new elections. Inflation was last at 1.6%, and there are more jobs requiring Social Security contributions than ever before. Why is that – how sustainable is it?
During the campaign, Pedro Sanchez said: “We govern better,” the prime minister claimed, “and the same in economic policy.” The Spanish government thinks of the majority of the people, not the elite.
In fact, the government has managed to significantly reduce inflation to below two percent. “We responded effectively to the fallout from the war in Ukraine,” Economy Minister Nadia Calvino said. “We have pushed the brakes on energy prices in Europe, we have cushioned inflation and reduced price rises through a package of seven measures.”
For example, the government has reduced VAT on basic food items to zero, i.e. suspended collection. Labor Secretary Yolanda Diaz is celebrating success in the labor market: “Youth unemployment is lower than it’s ever been, and female unemployment is the lowest it’s been in years. I think that’s pretty good.”
Expected growth of 2.3% in 2023
That sounds like a huge success. But in fact, youth unemployment remains the highest in the EU at 28%, and the situation for women is no better, on the contrary: almost 30% cannot find a job.
Meanwhile, the economy is booming. For example, tourism has boomed in the wake of the COVID-19 crisis and could set new visitor records this year. The Bank of Spain expects the overall economy to grow by 2.3% this year.
But despite high unemployment, the tourism industry suffers from a shortage of service workers. The problem: low wages, long hours, expensive housing in tourist hotspots.
Government promises to tenants
Housing prices are also a common problem, especially for low-income young professionals. Nearly half of those under 30 still live with their parents. All parties have pledged to help in the campaign. The government has intervened in the past with rent caps.
Prime Minister Sanchez also promised: “We will extend the ceiling by two percent until the end of the year and freeze rents for contracts that end in the middle of the year.”
Aid funds support Spanish economy
All this thanks to funding from the EU’s new crown reconstruction funds such as the Next Generation Fund. The resulting nearly 80 billion euros contributed about 6 percent of economic output. But the government is also pushing for a super profits tax on energy companies, which is used to fund part of the public assistance package.
Still, national debt rose nearly 6% year-on-year to 110% of GDP, about 20 percentage points above the euro area average. Economy Minister Italo Calvino said no problem: “We pay as little interest on government bonds as Germany.”
Italo Calvino said it was a testament to people’s confidence in Spain’s economic policy.
Two fragile sectors need support
However, it is still mainly geared towards tourism and agriculture; two sectors that have long stagnated and are grappling with new problems brought on by climate change: sweltering heat in tourist resorts, water temperatures as high as 30 degrees in Mallorca and even the Basque Country – experts predict that 10% of tourists may switch to other destinations in the short term.
In agriculture, prolonged drought and now notorious water scarcity are becoming a danger. Youth unemployment has not been brought under control by any government in recent decades.
Alberto Nuñez Fejo, the conservative candidate for the prime ministership, also faces a big task if the government changes. However, he has not yet proposed detailed content-related concepts. His answer during the campaign was rather simple: “We’re not perfect, but we’re much better than our government!”