• Spain's news in English
 
app_header_v3

'Sick man' Spain woos back wary investors

AFP · 22 Sep 2013, 12:15

Published: 22 Sep 2013 12:15 GMT+02:00

"Viva Espana," blared a recent report by the global financiers Morgan Stanley, advising clients to invest in bonds from the eurozone's fourth-biggest economy, which came close to a full bailout in 2012.

"Last year, a bit before September, everything was different. We were trying not to read analysts' reports so as not to get depressed," said Antonio Carrascosa, leader of Spain's state bank-restructuring fund, known as the FROB.

"Right now, it's the opposite. We are seeing the start of a recovery."

Having risen in mid-2012 as investors shunned the country, Spain's sovereign borrowing costs -- the yields or rates of interest it must pay on the debt markets to finance its public spending — have fallen sharply.

In July 2012 the yield on its benchmark 10-year bond was around 7.5 percent a level considered unsustainable by economists. It is now around 4.4 percent.

The Madrid stock market has just broken back through the 9,000-point barrier for the first time since October 2011.

"The concerns that were on the world's front pages a little over a year ago have disappeared," said Carrascosa.

Scrambling last year to stabilise public finances, Spain's conservative government introduced a series of austere reforms which sparked angry mass street protests.

The reforms included spending cuts and looser hiring-and-firing laws for companies, plus a shake-up of the banks to bolster their balance sheets and purge bad loans.

"With regards to structural reforms, certainly Spain, versus its neighbours, seems to be an exemplary case for progress, namely on the issues concerning the financial sector, labour market and fiscal framework," Morgan Stanley's analysts wrote.

The government is forecasting that the current quarter will see an end to the recession -- the second in a double downturn sparked by the collapse of a construction boom in 2008.

"A year ago, Spain was a problem for the European economy and the world economy," said Finance Minister Luis de Guindos last week. "Now it is not."

Strengthening exports and an easing in the decline of household spending "lead us to think that the Spanish economy has come out of recession," he said.

"But this does not mean it has come out of the crisis."

Other analysts were likewise cautious.

"We are very much in wait and see mode," said Fergus McCormick, head of sovereign ratings at the credit rating agency DBRS.

His agency currently scores Spain at A minus with a negative outlook, indicating it is creditworthy but at risk from economic shocks.

McCormick said he is looking for "signs of progress" in cutting the deficit, job creation and structural changes, warning that more unpopular labour reforms may be needed.

"Spain has made a lot of progress so far but has a long way to go, in particular in the labour market," he said.

"I think the greater concern is the stability of the housing market," he added, however, with far more empty buildings than buyers after the 2008 housing bust.

Spain's banks have drawn more than €41 billion ($55 billion) from an emergency eurozone credit line, but remain weighed down by unsold buildings and unpaid loans.

"The banking problem is under control but it has not yet been solved entirely," said Jesus Castillo, an analyst specialising in southern Europe a Natixis bank.

Story continues below…

"In any case, nothing will improve until the outlook for the economy is a bit better."

The government's latest forecasts tip a 1.3-percent contraction in overall economic output in 2013 before a return to growth of 0.5 percent in 2014 and one percent in 2015.

The towering unemployment rate is currently forecast to stand at 27.1 percent at the end of this year and 26.7 percent in 2014, staying above 25 percent until 2016.

"The economy is still very fragile and will depend very much on the trust actor, which will determine whether the investment cycle resumes or not," said Castillo.

In 2007, the year before the crisis erupted, Spain's public debt was worth 36.3 percent of gross domestic product. It now stands at 92.2 percent.

"The risk is if there is a shock from within Spain or from outside Spain, that destabilizes the financial market, thereby leading to higher interest rates for Spain," said McCormick.

"I think that could be a cause for concern."

Your comments about this article

Today's headlines
Gallery
10 super Spanish drinks everyone should try
Photo: Ignacio Palomo Duarte/Flickr

While we've all been tempted by the Spanish holiday classic of a chilled glass of sangria, Spain has much more to offer when it comes to tantalizing tipples.

Property
Buy your own Mediterranean island paradise for just €5m

Got a spare €5 million? Then this Mediterranean island paradise could be yours.

Vamos a la playa! These are Spain's top ten beaches
Playa de Ses Illetes, Formentera, Europe's best beach. Photo:Photo: Ismail Mia/Flickr

Spain has five beaches in Europe's top ten. The Local gives you a tour.

Spanish economy continues to grow despite lack of govt
Photo: Contando Estrelas/Flickr

Spain's economic growth continued in the second quarter even as the country remains mired in political limbo after two inconclusive general elections.

Shocking video shows torture of young calf during fiesta
Cruelty in the name of fun? Photo: Pacma

Bullfighting fiestas reached a new low with the torture of a young calf.

Ethan Hawkes to be honoured with San Sebastián award
Ethan Hawke in the Magnificent Seven

The Hollywood actor will be given the Donastia lifetime achievement at the 64th San Sebastián Film Festival.

Gallery
The ten most weird (and wonderful) museums in Spain
Photo: Courtesy of the Museum of Funeral Carriages.

Spain is home to some of the finest museums in the world, but it also boasts some of the most bizarre.

Spanish court bars top Eta figure from Basque elections
The Basque separatist leader in San Sebastian. Photo: AFP

Arnaldo Otegi, once jailed for terrorism charges, has been barred from standing in Basque elections.

Spanish town warns against texting while crossing roads
The warnings now appear at crossings in Talavera de la Reina in Spain.

It might seem entirely obvious to most, but it seems some people need to be told that looking at your phone while crossing a busy road can prove dangerous.

Police launch appeal for Costa Blanca hit and run driver
Photo: N332 /@drivingSpain/facebook

Do you recognise this car?

Sponsored Article
Life in Jordan: 'Undiscovered treasure'
Police launch appeal for Costa Blanca hit and run driver
Sponsored Article
Why you should attend an international job fair
Politics
What political deadlock? Spain economy forges ahead
Features
Eight reasons to spend your gap year exploring Spain
Sponsored Article
Jordan: where history meets adventure
International
'We won't ban burqinis on our beaches' insists Barcelona
Sponsored Article
Five things Americans should know about voting abroad
National
British dad drowns saving daughter on red flagged beach
National
11 Spanish words that English must adopt right now
Lifestyle
Justin Bieber just bought an amazing new pad in Lanzarote
Sponsored Article
Why expats choose international health insurance
Lifestyle
Recipe: How to make Andalusian Ajo Blanco soup
Sponsored Article
Why you should attend an international job fair
Travel
Keep passports safe: Typical pickpocket scams revealed
Travel
Ten touristy types you'll meet in Spain: Which one are you?
Sponsored Article
Jordan Pass: your ticket to the experience of a lifetime
Lifestyle
Ten top tips to avoid looking like a guiri when in Spain
Sponsored Article
Why expats choose international health insurance
International
Don't miss this spectacular meteor shower over Spain
Travel
Desperate Ryanair passenger chases after missed flight
Travel
What's on in Spain: August 2016
National
Get your kit off! Spain's ten best nudist beaches
National
German firestarter blames blaze on 'toilet paper mishap'
National
Flashmob prank sparks 'terror attack' panic in Spanish resort
Culture
Croquemon Go: Spain invents twist on game to 'eat 'em all'
Technology
Six free apps to simplify your summer in Spain
National
Spanish parents fight for right to name their son 'Wolf'
National
Beach closed after shark attack in southern Spain
National
Spain ups security at tourist spots as terrorism fears grow
National
Ten great reasons to discover the real Malaga right now
3,196
jobs available