Spanish government feels heat as economic recovery lags

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Spain’s left Prime Minister Pedro Sanchez started the year with an optimistic economic outlook. Months later, he faces protests, strikes and emboldened opposition as the recovery from the onset of the pandemic lags behind other European nations.

Gone is the optimism that was shown earlier this year when Sanchez forecast a strong comeback for the eurozone’s fourth-largest economy in 2021.

Since then, the country has been confronted with sluggish consumption, rising energy prices and weak growth.

“Little by little, the climate changed and clouds formed,” said Rafael Pampillon, an economist at CEU-San Pablo University.

The anger about the economic situation is now spreading on the streets.

Hundreds of auto workers protested in Madrid on Monday to draw attention to the industry’s problems, while metal workers in the southern city of Cadiz have been on strike since mid-November to demand wage increases.

Before Christmas, truckers threatened to go on strike to protest rising fuel prices.

The government had initially forecast that the economy would grow by 9.8 percent in 2021, one of the highest values ​​in the euro zone.

But in April it cut its forecast to 6.5 percent as a third wave of Covid-19 infections hit Spain. Most economists assume, however, that growth this year will not exceed the 5.0 percent mark.

Disappointing data on household consumption and investment have been released in recent weeks, dampening Spain’s economic outlook.

Revised figures show that gross domestic product (GDP) only grew by 1.1 percent in the second quarter, less than half of the 2.8 percent originally forecast.

And the growth in the third quarter was only 2.0 percent instead of 2.7 percent.

“It’s not that bad in absolute terms, but we could expect better,” said Pedro Aznar, professor at ESADE Business School in Spain.

He recalled that Spain’s tourism-dependent economy shrank 10.8 percent in 2020, one of the worst results among developed countries, so it has “plenty of room to grow”.

– Factory closure –

While Spain’s GDP is 6.6 percent below the pre-pandemic level, Italy has narrowed the gap to 1.4 percent, Germany to 1.1 percent and France to just 0.1 percent.

Analysts blame rising energy costs, supply chain disruptions and an over-reliance on tourism for slower growth in Spain.

Energy prices have risen across Europe, but the impact has been particularly strong in Spain, as it is heavily dependent on energy imports and higher gas and electricity prices “have hurt consumption,” Aznar said.

Higher energy prices also made a major contribution to inflation, which hit a 29-year high of 5.4 percent in October.

And global supply chain problems have dealt a blow to Spain’s main automaker sector, which accounts for 11 percent of economic output, Pampillon said.

“This forced many factories to close,” he added.

Before the spring 2020 pandemic, Spain was the second most popular travel destination in the world after France.

The government hopes to attract around 45 million tourist visits this year, roughly half the number for 2019.

But at the end of September it only welcomed 20 million as people continue to restrict travel because of the pandemic.

– ‘Too optimistic’ –

“The government has been too optimistic,” said Pampillon, adding that Spain is also slow to use money from the European Union’s economic fund.

Spain, one of the fund’s main beneficiaries, is expected to receive 140 billion euros ($ 157 billion) in grants and loans.

Aznar said the slower economic growth will “weaken” the government’s budget outlook and potentially “create a problem with Brussels” enforcing EU deficit rules.

Pablo Casado, leader of the largest opposition Conservative People’s Party (PP), which is currently leading the polls, accused Sanchez of economic “incompetence” during a debate in parliament earlier this month.

He called for structural reforms to cut taxes, make the labor market more flexible and “reduce bureaucracy and waste”.

Sanchez said he was “confident” about the country’s economic prospects.

“Spain are doing better and I promise we will be even better next year than we are today,” he said recently.

vab / ds / CHZ / lth


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