Spain’s Economy Recovering But Major Reforms Pending

The Spanish economy is recovering solidly, but there is a growing need to step up the pace of reforms in crucial areas such as pensions and financing of the country’s autonomous regions.

Those are some of the main conclusions of the Spanish Reform Monitor, a publication released this week by IESE’s Public-Private Sector Research Center (PPSRC) and private think tank Funcas as part of the SpanishReforms project. SpanishReforms is an academic, non-governmental project that monitors the performance of the Spanish economy, examines policy initiatives, and evaluates real progress toward implementing policy reforms.

“A new reform push is needed to raise productivity, put the pension system on a sustainable path, and attack polarization of the labor market, reducing inequalities and poverty. The reforms must include the public administration as well financing of autonomous regions,” said Prof. Xavier Vives, academic director of the PPSRC, at the Madrid event to release the report.

Of those reforms, the two most pressing in the coming months are the pension system and the debt of autonomous regions. The pension system supporting Spain’s aging population is financed by an ever-shrinking public fund, and the debt of autonomous regions has expanded to 25% of Spanish gross domestic product for the first time.

Political stability will be key to any serious push for reforms and to the overall health of the Spanish economy going forward, experts noted. Economists and academics from around Spain contribute to the SpanishReforms project, and Prof. Ramon Xifré, of the Universitat Pompeu Fabra, coordinates the initiative.

Economy More International, Financial System More Stable

The areas where most progress has been made in policy reform are the internationalization of the Spanish economy and stabilization of the financial system, the report noted.

And there have been some encouraging signs from the labor market, where employment is recovering thanks to an expanding economy and to 2012 labor reforms. Data indicates that some 500,000 jobs have been created per year since 2015.

“There’s a before and an after the 2012 labor reforms,” Carlos Ocaña, head of Funcas, said. “The goal was to recover lost competitiveness, which has been successfully achieved since jobs have been created, although with an adjustment in salaries and with considerable disparities among regions.”

There is still much work to be done, he noted, particularly in dealing with short-term contracts and in implementing more pro-active policies for job creation. There are approximately 2 million people who lost their jobs during the recent crisis and who have been unable to find work; long-term unemployment is one of the labor market’s main weaknesses.

Download Spanish Reform Monitor.