Bernardo M. Villegas
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Growth Reappears in Spanish Economy

           As one of the infamous members of the PIGS economies in Europe, Spain is waking up from its economic slumber of six years and is expected to grow by 2 percent in 2015 as its Government abandon the austerity measures and the private sector gains more confidence by increasing investments.  As I traveled to key cities of Spain in a non-deal investment road show during the first week of October 2014, I saw the beginning of a slow recovery that is being stimulated by increased government expenditures in infrastructures the budget for which is being increased by 8.8 percent.  The business pages reported the creation of 348,200 jobs bringing the unemployment rate from 26.2 per cent in 2011 to 22.2 per cent in 2015.  Despite these improvements in the macroeconomic picture, unemployment rates among those in their twenties and thirties still remain high at close to 50 percent, driving many of the yuppies to seek job opportunities abroad, including in the Philippines.

          When I resided in Spain just before the start of the Great Recession in 2008, I still witnessed the tail end of the real estate and construction boom that made the country the fastest growing economy in the European Union.  Real estate prices were rising constantly and it was common even for middle income households to have two or three houses, one usually by the beach or the mountains.  Like the U.S. and other developed economies, Spain suffered a real estate bubble during the Great Recession.   It was estimated that at the depths of the bubble, there were as many as one million housing units unsold.  Talking to some real estate brokers in late September, I was glad to hear that signs of improvement are surfacing in key cities.  Last September 29, the Financial Times carried a story entitled “Spanish ghost town shows signs of life.”    This was in reference to a small town called Sesena in the region of Castille that suffered a collapse in real estate prices.  Things are looking up, however, 

          All over Spain, the bottom has been reached.  As the FT article reported:  “Similar sighs of relief can be heard in real estate offices up and down the country.  After a long and painful collapse, Spain’s housing market is showing signs of life.  According to official data, house prices rose 0.8 percent in the second quarter, the first year-on-year increase in more than six years.”  Thanks to foreigners, especially the Chinese, taking interest in Spanish real estate, the number of property sales rose 16 percent in June 2014, the sixth month in a row that saw annual growth.  As the FT report continued:  “After years  of reticence, foreign funds and local buyers are pouring money into Spanish property once again:  according to some estimates, investment in the first half of 2014 is more than twice as high as in the same period last year.”

          The Spanish Government, in the hands of the conservative Partido Popular, is heeding the advice of the pro-Keynesian economists that austerity measures should be reversed and that some amount of pump priming is the key to recovery.   Public investment in infrastructures, as mentioned above, will be increasing by 8.8 percent in 2015.  As reported in the Spanish business daily “Expansion” (October 1, 2014), the decrease in the unemployment subsidies and interest on public debt by 5.5 billion euros has allowed the Government to reverse the austerity program that was set in place two years ago.  This has been possible despite the fact that pension payments increased by 3.2 percent due to the ageing of the population.  Just like Japan, Spain may be able to recover from a deep recession but will continue to suffer from slow growth for the indefinite future because of the irreversible ageing of the population.  Spain is one more example of the ill effects of very low fertility rates.

          Faced with these prospects of long-term mediocre growth (now referred to as the “new mediocre”) numerous Spanish businesses with advanced technology and management expertise in such areas as tourism, housing, infrastructures, alternative energy, fashion, food processing and logistics are eager to do business in Asia, including the Philippines.  In the various cities where our road show met potential investors, we were peppered with questions on how to take advantage of the Philippines as the gateway of the ASEAN Economic Community.  Especially after the state visit of President B.S Aquino III to Madrid in early September 2014, we should expect more business delegations from Spain to come to the Philippines in the coming months.  Business groups in the Philippines looking for potential partners in Spain may get in touch with the Barcino Advisers through Dr. Ricardo Barcelona at email address For comments, my email address is