The Spanish economy has emerged from recession after two years according to the official Spanish statistical body, INE (Instituto Nacional de Estadistica). INE confirmed that the economy had grown by 0.1% in Q3, confirming an earlier report from the Spanish central bank.
The Spanish economy is the fourth largest within the Eurozone after Germany, France and Italy (the UK which is not a member of the Eurozone is the second largest economy in the European Union, behind Germany). Whilst the confirmation that the Spanish economy has returned to growth, much remains to be achieved before the recovery is stable and strong. Until that happens, Spain will continue to struggle with the burden of the highest level of unemployment in Eurozone history. Currently, 26% of the Spanish workforce is unemployed.
Spain’s return to growth has been led by exports and an increase in tourism, helped by tensions in other holiday spots in North Africa and the Middle East. However, domestic demand remains very weak following on from the collapse of Spain’s construction and property bubble which precipitated the economic crisis. The bubble had inflated for more than a decade and when it burst, thousands of businesses went bankrupt and the banking sector was brought to the edge of collapse. Retail sales picked up for the first time in September after three years of decline (but, of course, that comes off a very low base). Demand will not really pick-up until the recovery strengthens and jobs are created, but it looks as if this may need to be export led. Weak demand has hammered inflation with consumer prices rising by just 0.1% in October.
The government is forecasting that the economy will shrink by 1.3% for the full year, but should grow by 0.7% in 2014.