Spotlight: Spain's economy recovers in 2015 but still faces challenges

It could be said that 2015 is the year when the Spanish slight economic growth, whose first signs appeared in the third quarter of 2013, begins to stabilize after a long economic recession.

However, there are still challenges for the Spanish economy, such as high unemployment, an issue that the next government will have to deal with after the general elections on Sunday.

The optimistic side of the performance of the Spanish economy in 2015 is shown by the treasury auctions marked by a decline in interest rates. The treasury was able to place debt on the market at negative interest rates in several occasions.

The first time on April 7, when it placed 725 million euros (783 million U.S. dollars) worth six-months treasury bills at an average interest rate of -0.002 percent. Today, the treasury has already reached its goal for 2015 by placing a total of 139 billion euros.

The Spanish stock market index, the IBEX-35, began 2015 with 10,350.80 points and the risk premium falling below 100 points to 97.3 points.

It was a good beginning taking into account the risk premium performance during the crisis as it surpassed the 600 points in the summer of 2012, when the Partido Popular of Spanish Prime Minister Mariano Rajoy was forced to ask for a bailout to recapitalize Spanish banks.

Meanwhile, Spain's 10-year bond interest rate began the year at 1.4 percent, also far below the 7 percent that surpassed in 2012. It remained stable all over 2015 and nowadays is around 1.7 percent.

The Spanish risk premium is currently still around 100 points after a year marked by an improvement in Spain's economic growth but also by the uncertainties surrounding the Greek economy, the growth of emerging countries and the crisis of Abengoa.

Abengoa, a Spanish renewable energy company, started pre-insolvency proceedings in November, suffered heavy losses in the stock market and was suspended from trading.

If Abengoa does not reach an agreement with creditors, it would become the largest bankruptcy on record, due to the high debt and the high number of employees, having a significant impact both locally and internationally.

Among the creditors are foreign companies and many Spanish banks, including Bankia, which is still partially controlled by the State.

The Ibex-35 performance has not been very positive over the last weeks and so far it has fallen by around 5.5 percent. However, on the other hand, it accumulates a revaluation of about 70 percent from the lowest levels of 2012 according to data of Bolsas y Mercados Espanoles (BME).

Another positive aspect in 2015 is the recovery of domestic consumption. The capital goods employers' organization, Sercobe, estimates that the purchase of capital goods by the domestic industry will grow by 12.3 percent this year.

Private consumption growth accelerated in 2015, increasing by 1 percent in the third quarter. There have been increases in housing sales, whose prices have begun to rise, and vehicle purchases, both sectors heavily hit by the economic crisis.

Consumer confidence and retail sector indicators had declined in the third quarter but they have grown again in October and November and big stores expect to break a record high in sales this Christmas since the beginning of the crisis.

Analysts warn however, that consumption growth may slow down for 2016, since in 2015 it has benefited from the drop in prices of energy products, tax cuts and the impact of the fall of the Euribor on families' income, among others.

Consumption also depends on unemployment, one of the challenges for the Spanish economy in 2016.

According to the latest Inquest into the Active Population (EPA) published by Spain's Statistical Office (INE), in the third quarter of 2015 there were 4.8 million unemployed people in Spain, 576,900 fewer unemployed people when compared with a year earlier.

If data from the fourth quarter of 2011, when the last general elections were held, to the third quarter of 2015 is compared, labor force has fallen by 540,800 people, unemployment has fallen by 436,000 people, employment has fallen by 104,000 people and there are 728,000 more people who have been more than two years without a job.

In addition, the number of workers with indefinite contracts fell by 354,000 people and those with temporary contracts have grown by 153,000.

Regarding the decline of the country's labor force, it should be noted that according to the INE, in the first half of 2015 the emigration of Spaniards reached its highest level since the beginning of the crisis rising to 50,844 people. The figure is higher than the total number of people who left the country in 2010, 40,157.

Some of those Spaniards living abroad may not vote on Sunday in the country's general elections due to the bureaucratic hurdles of postal vote.

The country's next government will have to deal with a very high level of public debt, in October 98.8 percent of GDP, and meet the deficit target required by the European Union (EU), 4.2 percent in 2015 and 2.8 percent in 2016.

It has been estimated that this year the Spanish economy could have grown between 3.2 percent and 3.3 percent.

For 2016, the Spanish government predicted a 3 percent growth, but other institutions like the Bank of Spain, the European Commission (EC) and the International Monetary Fund (IMF) predicted lower rates. The first two predicted a 2.7 percent growth in 2016 while the third one a 2.5 percent growth, the three indicating that growth may slow down next year.

All these predictions, however, are subject to uncertainty, especially marked by the upcoming elections on Dec. 20 when Spaniards will elect a new parliament. The new government will decide the economic measures to implement, choosing between continuity and change and leading the course of Spain's economy. (1 euro =1.08 U.S. dollars) Enditem