Abstract
Although not escaping the global slowdown, the Spanish economy has weathered it relatively well. The discussions focused on minimizing short-term risks and on identifying the structural reform priorities for the next government. However, household indebtedness has continued to rise rapidly, recently surpassing the EU average; the authorities viewed the related risks to growth as contained. The discussions also centered on issues of fiscal policy implementation. Although unemployment has been halved since the mid-1990s, it remains high and a number of rigidities persist.
1. This supplement to the staff report for the 2003 Article IV consultation with Spain provides an update on recent developments, which do not change the thrust of the staff appraisal. The most significant events since the issuance of the staff report have been the terrorist attacks of March 11 in Madrid, and the victory by the opposition Socialist Party (PSOE) in the general elections of March 14. The PSOE fell short of an absolute majority, requiring the support of smaller parties. Despite differences in electoral platforms, and differing priorities in terms of structural reforms, most observers do not expect a significant shift in the course of macroeconomic policy, particularly as regards the stability-orientation of fiscal policy, which has gained broad support in recent years.
2. It is too early to make a meaningful assessment of the attack’s potential economic impact. The immediate effect has been a weakening of the Spanish equity market, reflecting the adverse impact on confidence and an increase in risk aversion. The key tourism sector is also expected to be affected. Most analysts are of the view, however, that such effects will be relatively short-lived and, although the balance of risks has clearly shifted, staff is not at this stage revising its GDP growth forecast for 2004 (2.8 percent).
3. Economic indicators for the fourth quarter continue to point to a gradual, domestic demand-led recovery with receding inflation. Although GDP growth in 2003 was in line with expectations, its composition was somewhat different (Table 1). Domestic demand growth came in even stronger than expected, buoyed by private and public consumption and construction activity. For its part, the larger negative external contribution reflected both weaker export performance and stronger growth in imports. In the labor market, employment growth remained robust. Partly reflecting a base effect, inflation moderated appreciably in early 2004, with the 12-month increase in the harmonized price index averaging 2¼ percent in January and February.
Spain: Main Economic Indicators, 1998-2004 1/
Figures for 2004 are Fund staff projections.
Change as percentage of previous year’s GDP.
Year-on-year percentage change.
Based on national definition, i.e., the labor force is defined as people older than 16.
As of November 2003.
Spain: Main Economic Indicators, 1998-2004 1/
| Estimates | Projections | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | ||||
| Demand and supply in constant prices | ||||||||||
| Gross domestic product | 4.3 | 4.2 | 4.2 | 2.8 | 2.0 | 2.4 | 2.8 | |||
| Private consumption | 4.4 | 4.7 | 4.0 | 2.8 | 2.6 | 3.0 | 3.1 | |||
| Public consumption | 3.7 | 4.2 | 5.1 | 3.6 | 4.4 | 4.6 | 3.1 | |||
| Gross fixed investment | 10.0 | 8.8 | 5.7 | 3.3 | 1.0 | 3.0 | 3.6 | |||
| Equipment investment | 12.6 | 8.6 | 5.1 | 0.4 | -2.7 | 2.2 | 3.5 | |||
| Construction investment | 7.8 | 90 | 6.1 | 5.8 | 4.2 | 3.7 | 3.7 | |||
| Stockbuilding (contribution to growth) 2/ | 0.2 | 0.1 | -0.1 | -0.1 | 0.0 | 0.0 | 0.2 | |||
| Total domestic demand | 5.7 | 5.6 | 4.5 | 3.0 | 2.6 | 3.3 | 3.4 | |||
| Net exports (contribution to growth) 2/ | -1.3 | -1.4 | -0.4 | -0.2 | -0.6 | -1.0 | -0.7 | |||
| Exports of goods and services | 8.2 | 7.7 | 10.0 | 3.6 | 0.0 | 4.0 | 3.8 | |||
| Imports of goods and services | 13.2 | 12.6 | 10.6 | 4.0 | 1.8 | 6.7 | 5.6 | |||
| Potential output growth | 3.3 | 3.4 | 3.3 | 3.4 | 3.2 | 3.0 | 3.0 | |||
| Output gap (percent of potential) | -0.8 | 0.0 | 0.9 | 0.4 | -0.7 | -1.2 | -1.5 | |||
| Private credit growth | 16.5 | 15.4 | 17.2 | 11.8 | 12.3 | 14.2 | … | |||
| Prices | ||||||||||
| GDP deflator | 2.4 | 2.7 | 3.5 | 4.2 | 4.4 | 4.2 | 3.9 | |||
| HICP (average) 3/ | 1.8 | 2.2 | 3.5 | 2.8 | 3.6 | 3.1 | 2.7 | |||
| CPI (average) 3/ | 1.8 | 2.3 | 3.4 | 3.6 | 3.1 | 3.0 | 2.7 | |||
| Employment and wages | ||||||||||
| Unemployment rate (in percent) | 18.7 | 15.7 | 13.9 | 10.5 | 11.4 | 11.3 | 10.8 | |||
| Unit labor cost in manufacturing (growth rate) | 1.9 | 1.2 | 2.4 | 4.0 | 2.9 | 2.2 | 3.1 | |||
| Wage growth | 26 | 2.7 | 3.7 | 3.7 | 3.8 | 3.4 | … | |||
| Employment growth | 4.1 | 5.5 | 5.5 | 3.7 | 2.0 | 2.7 | 2.7 | |||
| Labor participation rate (in percent) 4/ | ||||||||||
| Total | 52.0 | 52.5 | 53.6 | 52.9 | 54.0 | 55.1 | … | |||
| Male | 65.5 | 65.8 | 66.6 | 66.2 | 66.9 | 67.5 | … | |||
| Female | 39.2 | 39.9 | 41.3 | 40.3 | 41.8 | 43.3 | … | |||
| Personal sector | ||||||||||
| Household savings (percent of disposable income) | 12.2 | 11.2 | 10.8 | 10.3 | 10.6 | 10.7 | 11.0 | |||
| Balance of payments (percent of GDP) | ||||||||||
| Trade balance | -3.5 | -5.1 | -6.2 | -5.6 | -5.0 | -5.3 | -5.7 | |||
| Current account balance | -0.5 | -2.3 | -3.4 | -2.8 | -2.4 | -2.5 | -2.9 | |||
| Nominal effective rate (1990=100) | 76.2 | 74.7 | 71.9 | 72.3 | 74.2 | 76.0 5/ | … | |||
| Real effective rate (1990=100) | 84.9 | 84.2 | 82.1 | 83.6 | 87.6 | 90.6 5/ | … | |||
| Public finance (percent of GDP) | ||||||||||
| General government balance | -3.0 | -1.2 | -0.8 | -0.3 | 0.1 | 0.3 | 0.4 | |||
| Primary balance | 1.0 | 2.2 | 2.3 | 2.6 | 2.6 | 2.5 | 2.5 | |||
| Structural balance | -2.3 | -1.0 | -1.2 | -0.7 | 0.5 | 1.0 | 1.3 | |||
| Structural primary balance | 1.7 | 2.3 | 1.9 | 2.2 | 3.0 | 3.2 | 3.4 | |||
| General government debt | 64.6 | 63.1 | 60.6 | 57.1 | 53.8 | 50.8 | 47.2 | |||
Figures for 2004 are Fund staff projections.
Change as percentage of previous year’s GDP.
Year-on-year percentage change.
Based on national definition, i.e., the labor force is defined as people older than 16.
As of November 2003.
Spain: Main Economic Indicators, 1998-2004 1/
| Estimates | Projections | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | ||||
| Demand and supply in constant prices | ||||||||||
| Gross domestic product | 4.3 | 4.2 | 4.2 | 2.8 | 2.0 | 2.4 | 2.8 | |||
| Private consumption | 4.4 | 4.7 | 4.0 | 2.8 | 2.6 | 3.0 | 3.1 | |||
| Public consumption | 3.7 | 4.2 | 5.1 | 3.6 | 4.4 | 4.6 | 3.1 | |||
| Gross fixed investment | 10.0 | 8.8 | 5.7 | 3.3 | 1.0 | 3.0 | 3.6 | |||
| Equipment investment | 12.6 | 8.6 | 5.1 | 0.4 | -2.7 | 2.2 | 3.5 | |||
| Construction investment | 7.8 | 90 | 6.1 | 5.8 | 4.2 | 3.7 | 3.7 | |||
| Stockbuilding (contribution to growth) 2/ | 0.2 | 0.1 | -0.1 | -0.1 | 0.0 | 0.0 | 0.2 | |||
| Total domestic demand | 5.7 | 5.6 | 4.5 | 3.0 | 2.6 | 3.3 | 3.4 | |||
| Net exports (contribution to growth) 2/ | -1.3 | -1.4 | -0.4 | -0.2 | -0.6 | -1.0 | -0.7 | |||
| Exports of goods and services | 8.2 | 7.7 | 10.0 | 3.6 | 0.0 | 4.0 | 3.8 | |||
| Imports of goods and services | 13.2 | 12.6 | 10.6 | 4.0 | 1.8 | 6.7 | 5.6 | |||
| Potential output growth | 3.3 | 3.4 | 3.3 | 3.4 | 3.2 | 3.0 | 3.0 | |||
| Output gap (percent of potential) | -0.8 | 0.0 | 0.9 | 0.4 | -0.7 | -1.2 | -1.5 | |||
| Private credit growth | 16.5 | 15.4 | 17.2 | 11.8 | 12.3 | 14.2 | … | |||
| Prices | ||||||||||
| GDP deflator | 2.4 | 2.7 | 3.5 | 4.2 | 4.4 | 4.2 | 3.9 | |||
| HICP (average) 3/ | 1.8 | 2.2 | 3.5 | 2.8 | 3.6 | 3.1 | 2.7 | |||
| CPI (average) 3/ | 1.8 | 2.3 | 3.4 | 3.6 | 3.1 | 3.0 | 2.7 | |||
| Employment and wages | ||||||||||
| Unemployment rate (in percent) | 18.7 | 15.7 | 13.9 | 10.5 | 11.4 | 11.3 | 10.8 | |||
| Unit labor cost in manufacturing (growth rate) | 1.9 | 1.2 | 2.4 | 4.0 | 2.9 | 2.2 | 3.1 | |||
| Wage growth | 26 | 2.7 | 3.7 | 3.7 | 3.8 | 3.4 | … | |||
| Employment growth | 4.1 | 5.5 | 5.5 | 3.7 | 2.0 | 2.7 | 2.7 | |||
| Labor participation rate (in percent) 4/ | ||||||||||
| Total | 52.0 | 52.5 | 53.6 | 52.9 | 54.0 | 55.1 | … | |||
| Male | 65.5 | 65.8 | 66.6 | 66.2 | 66.9 | 67.5 | … | |||
| Female | 39.2 | 39.9 | 41.3 | 40.3 | 41.8 | 43.3 | … | |||
| Personal sector | ||||||||||
| Household savings (percent of disposable income) | 12.2 | 11.2 | 10.8 | 10.3 | 10.6 | 10.7 | 11.0 | |||
| Balance of payments (percent of GDP) | ||||||||||
| Trade balance | -3.5 | -5.1 | -6.2 | -5.6 | -5.0 | -5.3 | -5.7 | |||
| Current account balance | -0.5 | -2.3 | -3.4 | -2.8 | -2.4 | -2.5 | -2.9 | |||
| Nominal effective rate (1990=100) | 76.2 | 74.7 | 71.9 | 72.3 | 74.2 | 76.0 5/ | … | |||
| Real effective rate (1990=100) | 84.9 | 84.2 | 82.1 | 83.6 | 87.6 | 90.6 5/ | … | |||
| Public finance (percent of GDP) | ||||||||||
| General government balance | -3.0 | -1.2 | -0.8 | -0.3 | 0.1 | 0.3 | 0.4 | |||
| Primary balance | 1.0 | 2.2 | 2.3 | 2.6 | 2.6 | 2.5 | 2.5 | |||
| Structural balance | -2.3 | -1.0 | -1.2 | -0.7 | 0.5 | 1.0 | 1.3 | |||
| Structural primary balance | 1.7 | 2.3 | 1.9 | 2.2 | 3.0 | 3.2 | 3.4 | |||
| General government debt | 64.6 | 63.1 | 60.6 | 57.1 | 53.8 | 50.8 | 47.2 | |||
Figures for 2004 are Fund staff projections.
Change as percentage of previous year’s GDP.
Year-on-year percentage change.
Based on national definition, i.e., the labor force is defined as people older than 16.
As of November 2003.
4. The general government accounts registered a slight surplus in 2003 (Table 2). The surplus—at 0.3 percent of GDP—was somewhat smaller than expected earlier despite a better showing of the social security accounts. The strength of social security contributions is estimated to have raised the social security surplus to 1 percent of GDP. But this improvement was more than offset by the weaker outcome for the territorial governments, whose deficit of 0.3 percent of GDP fell short of the legally mandated “zero deficit” under the Budgetary Stability Law.
Spain: Fiscal Accounts, 1998-2004
(In percent of GDP)
Excludes 0.1 percent of GDP received from the auction of mobile telephone licenses in 2000.
Spain: Fiscal Accounts, 1998-2004
(In percent of GDP)
| Estimates | Projections | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||
| Current Revenues | 37.7 | 38.3 | 38.5 | 38.7 | 39.1 | 39.2 | 39.1 | ||
| Indirect taxes | 11.1 | 11.7 | 11.7 | 11.4 | 11.6 | 11.7 | 11.7 | ||
| Direct taxes | 10.2 | 10.2 | 10.5 | 10.5 | 10.9 | 10.8 | 10.7 | ||
| Social security contributions | 13.0 | 13.1 | 13.3 | 13.6 | 13.6 | 13.8 | 13.8 | ||
| Other current revenues | 3.4 | 3.3 | 2.9 | 3.2 | 2.9 | 2.9 | 2.9 | ||
| Current expenditures | 36.5 | 35.4 | 35.2 | 34.8 | 34.8 | 34.7 | 34.5 | ||
| Public consumption | 17.1 | 17.1 | 17.2 | 17.2 | 17.3 | 17.4 | 17.3 | ||
| Current transfers | 12.8 | 12.4 | 12.3 | 12.2 | 12.3 | 12.3 | 12.4 | ||
| Interest payments | 4.3 | 3.5 | 3.3 | 3.1 | 2.8 | 2.5 | 2.4 | ||
| Other current expenditures | 1.2 | 1.2 | 1.2 | 1.2 | 1.3 | 1.3 | 1.3 | ||
| Current balance | 1.2 | 2.9 | 3.3 | 3.9 | 4.3 | 4.5 | 4.6 | ||
| Gross fixed capital formation | 3.3 | 3.5 | 3.1 | 3.3 | 3.5 | 3.5 | 3.5 | ||
| Capital transfers and other | 1.5 | 1.3 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | ||
| Primary balance | 1.0 | 2.2 | 2.3 | 2.6 | 2.6 | 2.5 | 2.5 | ||
| Overall balance | -3.0 | -1.2 | -0.8 | -0.3 | 0.1 | 0.3 | 0.4 | ||
| Central government | -2.4 | -1.1 | -0.9 | -0.5 | -0.4 | -0.4 | -0.4 | ||
| Territorial governments | -0.3 | -0.2 | -0.4 | -0.5 | -0.3 | -0.3 | 0.0 | ||
| Social security | -0.3 | 0.1 | 0.4 | 0.8 | 0.8 | 1.0 | 0.8 | ||
| Government debt | 64.6 | 63.1 | 60.6 | 57.1 | 53.8 | 50.8 | 47.2 | ||
| Memorandum items: | |||||||||
| Structural primary balance 1/ | 1.7 | 2.3 | 1.9 | 2.2 | 3.0 | 3.3 | 3.4 | ||
| Structural balance 1/ | -2.3 | -1.0 | -1.2 | -0.7 | 0.5 | 1.0 | 1.3 | ||
| Structural expenditure | 40.7 | 40.0 | 40.1 | 39.9 | 39.3 | 39.0 | 38.7 | ||
| Structural revenue | 38.4 | 39.0 | 38.9 | 39.2 | 39.8 | 40.0 | 40.0 | ||
Excludes 0.1 percent of GDP received from the auction of mobile telephone licenses in 2000.
Spain: Fiscal Accounts, 1998-2004
(In percent of GDP)
| Estimates | Projections | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||
| Current Revenues | 37.7 | 38.3 | 38.5 | 38.7 | 39.1 | 39.2 | 39.1 | ||
| Indirect taxes | 11.1 | 11.7 | 11.7 | 11.4 | 11.6 | 11.7 | 11.7 | ||
| Direct taxes | 10.2 | 10.2 | 10.5 | 10.5 | 10.9 | 10.8 | 10.7 | ||
| Social security contributions | 13.0 | 13.1 | 13.3 | 13.6 | 13.6 | 13.8 | 13.8 | ||
| Other current revenues | 3.4 | 3.3 | 2.9 | 3.2 | 2.9 | 2.9 | 2.9 | ||
| Current expenditures | 36.5 | 35.4 | 35.2 | 34.8 | 34.8 | 34.7 | 34.5 | ||
| Public consumption | 17.1 | 17.1 | 17.2 | 17.2 | 17.3 | 17.4 | 17.3 | ||
| Current transfers | 12.8 | 12.4 | 12.3 | 12.2 | 12.3 | 12.3 | 12.4 | ||
| Interest payments | 4.3 | 3.5 | 3.3 | 3.1 | 2.8 | 2.5 | 2.4 | ||
| Other current expenditures | 1.2 | 1.2 | 1.2 | 1.2 | 1.3 | 1.3 | 1.3 | ||
| Current balance | 1.2 | 2.9 | 3.3 | 3.9 | 4.3 | 4.5 | 4.6 | ||
| Gross fixed capital formation | 3.3 | 3.5 | 3.1 | 3.3 | 3.5 | 3.5 | 3.5 | ||
| Capital transfers and other | 1.5 | 1.3 | 1.4 | 1.4 | 1.4 | 1.4 | 1.4 | ||
| Primary balance | 1.0 | 2.2 | 2.3 | 2.6 | 2.6 | 2.5 | 2.5 | ||
| Overall balance | -3.0 | -1.2 | -0.8 | -0.3 | 0.1 | 0.3 | 0.4 | ||
| Central government | -2.4 | -1.1 | -0.9 | -0.5 | -0.4 | -0.4 | -0.4 | ||
| Territorial governments | -0.3 | -0.2 | -0.4 | -0.5 | -0.3 | -0.3 | 0.0 | ||
| Social security | -0.3 | 0.1 | 0.4 | 0.8 | 0.8 | 1.0 | 0.8 | ||
| Government debt | 64.6 | 63.1 | 60.6 | 57.1 | 53.8 | 50.8 | 47.2 | ||
| Memorandum items: | |||||||||
| Structural primary balance 1/ | 1.7 | 2.3 | 1.9 | 2.2 | 3.0 | 3.3 | 3.4 | ||
| Structural balance 1/ | -2.3 | -1.0 | -1.2 | -0.7 | 0.5 | 1.0 | 1.3 | ||
| Structural expenditure | 40.7 | 40.0 | 40.1 | 39.9 | 39.3 | 39.0 | 38.7 | ||
| Structural revenue | 38.4 | 39.0 | 38.9 | 39.2 | 39.8 | 40.0 | 40.0 | ||
Excludes 0.1 percent of GDP received from the auction of mobile telephone licenses in 2000.
5. House prices and mortgage credit have continued to expand at a rapid clip. Following a short-lived slowdown, house price increases returned to the rapid pace set in the first half of the year, bringing the annual increase for 2003 to 17 percent—the highest in over a decade. Mortgage credit also continued to expand rapidly, by over 23 percent (year-on-year) in the fourth quarter, with the outstanding stock reaching 63 percent of GDP. Total household indebtedness now exceeds the EU average, but remains well below levels in the United Kingdom and the United States.