Risk assessment

In its most recent tweak to global growth forecasts, the IMF has hiked Spain’s projected GDP expansion for 2017 to 2.6%, up from 2.3% in January. Although very slight, the increase is an indication that the body’s economists see no immediate threat to Spain posed by Donald Trump; in IMF’s January report, it wrote that growth forecasts would be adjusted in April “as more clarity emerges on US policies and their implications for the global economy”.

In the spring meeting of the IMF, which began on Tuesday, the organistation’s managing director Christine Lagarde saluted Spain for pulling itself out of a brutal recession. The praise is not undeserved, because Spanish GDP has enjoyed three consecutive years of growth and is now back to pre-crisis levels of health. Nevertheless, Lagarde said that there is still a long way to go before Spain can consider itself completely in the clear - and she correctly identified the main risks as coming not from the other side of the Atlantic, but from within Spain itself.

The threats posed to the continuation of Spain’s GDP expansion - and in particular to productivity levels - stem from its labour market problems, as Lagarde pointed out. Part of the problem is what she called Spain’s labour “duality” - a system in which workers on temporary contracts can be fired at a moment’s notice with zero cost to the employer, whereas those on permament contracts enjoy almost total immunity from such risks.

Temporary contracts are indeed the scourge of the Spanish labour market, rendering many workers without the stability or support required to forge satisfying careers. The Spanish government, at least, has recently pledged to create 250,000 more permament positions in the public sector throughout 2017 and data from the employment agency Randstad in February indicated that in 2016 21.6% more contracts were made permanent than in 2015. This problem, it seems, has at least been acknowledged as such by the government, although a lasting solution will require Mariano Rajoy to overhaul some of his own labour market reforms of 2012/2013. Whether or not he’s prepared to go that far remains to be seen.

There is another problem that Lagarde didn’t refer to, though: long term unemployment. Spain’s long term unemployment level currently hovers at around 9% - the second highest in the EU after Greece’s 17% - and according to OECD data just over 50% of Spain’s unemployed have been without work for twelve months or more. This is a serious problem, as the longer someone is unemployed, the more difficult it is for them to get back to work; as yet, the Popular Party government has not focused on helping this substantial cohort of workers back into employment. So long as this is the case, the rosy picture presented by the IMF’s growth predictions won’t match the reality for many Spanish households.