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September 4, 2013 1:21 pm
Spain’s nascent recovery shows that the eurozone’s austerity measures have worked after all, the economy minister has said, offering a riposte to the backlash against the continent’s response to the crisis.
“We are much more confident than we were six months ago,” Luis de Guindos told the Financial Times in an interview, adding that he expected the Spanish economy to emerge from recession in the current quarter. The minister also revealed that his officials were revising upwards the growth target for next year, and that he expected the export-led recovery to make a “real dent” into Spain’s still-towering unemployment rate as early as March.
“Spain will show clearly the quality of the policies implemented in the eurozone,” the minister said. “It has been tough for the population. But we implemented difficult tax measures and expenditure cuts. We have implemented some reforms that were not popular. Now, we expect to reap the fruits of these policies. And we are starting to see the light at the end of the tunnel.”
Mr de Guindos said his officials were “slightly” revising upward the 2014 growth forecast from the current projection of 0.5 per cent. He said Madrid was already expecting the end-of-year unemployment figure to be better than previously announced, with the jobless rate predicted to fall below 27 per cent.
Coming just weeks before a crucial election in Germany, his comments highlight growing confidence among policy makers in the EU that they are finally getting to grips with an economic and financial crisis that has tormented the continent for almost half a decade. Bond yields have fallen sharply over the past year in peripheral eurozone countries, while the bloc as a whole managed to return to growth in the second quarter of the year.
Spain itself is poised to emerge from a deep economic slump that saw gross domestic product fall for nine consecutive quarters. According to Mr de Guindos, the economy will be shown to have grown by as much as 0.2 per cent in the three months to the end of September, fuelled by a sharp rise in exports from newly-competitive sectors such as the car industry.
“The automobile industry is transferring a lot of production not only from Europe but also from Asia to Spanish factories. This is an indication that you have the correct cost of labour and that you have much more flexibility here in Spain than in other areas,” he said.
“In real terms, our exports of merchandise are growing at a rate of 8 per cent; we are second to none in the eurozone. Our projection of the trade account is that we will be very close to balance. That has never happened in Spain,” Mr de Guindos said. Spain’s current account, he added, was expected to show a surplus of about 2 per cent of GDP this year – another record.
Pointing to the government’s unpopular labour market reform, pushed through against fierce opposition from unions last year, Mr de Guindos insisted that Spain would start creating jobs on a sustained basis in the second or third quarter next year.
“Our projection is that the labour market reform has clearly reduced the threshold at which we start to create jobs. Traditionally, the Spanish economy had to grow by more than 2 per cent to start to create jobs in net terms. Now we think that a growth rate of about 1 per cent [year-on-year] is enough to start creating jobs,” he said. “When will we be there? We think we will be there in the second or third quarter of next year.”
Mr de Guindos’s economic outlook contrasts sharply with the more bleak prediction made by the International Monetary Fund, which has warned that Spain may be saddled with unemployment of about 25 per cent until 2018. The economy minister described the fund’s forecasts as “a little bit pessimistic”, arguing that it was not taking into consideration the impact of current and future structural reforms pushed through by Madrid.
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