Spanish growth outstrips stalled eurozone partners

Spain’s GDP growth accelerated to 1 percent in the second quarter, making it one of the fastest growing countries in the eurozone but the IMF has warned it must stay on course with its economic reforms.

Spanish growth outstrips stalled eurozone partners
The country has emerged from five years of recession. Photo: AFP

The Eurozone as whole grew less than expected during the second quarter, according to estimations published by the European Union’s statistic office on Friday.

GDP grew by just 0.3 percent across the 19 country euro area – slightly less than expected – and yet Spain recorded the second highest growth, after Latvia.

Spain's growth of 1 percent GDP during April to June after recording a 0.9 percent rise during the first three months of the year.

The positive data came as the IMF warned Spain’s government that it must stay the course on economic reforms ahead if it wants generate growth and reduce its sky-high unemploymentrate, ahead of a year-end general election.

“The clearer we are in not reversing existing structural reforms and fiscal consolidation, the stronger is the defence against any external risks,” said Helge Berger, chief of the IMF mission in Spain following the publication of the body's annual report on the country.

The Washington-based IMF warned that backtracking on reforms would “create uncertainty and damage the recovery, especially if external conditions deteriorate.”

Spain is benefiting from a weaker euro which helps boost exports and lower oil prices and is less exposed to “external contagions” such as the Greek economic crisis, it added.

The country emerged in 2013 from five years of on-off recession and the government forecasts the economy will grow by 3.3 percent this year — more than twice the average forecast for eurozone countries.

Prime Minister Mariano Rajoy's conservative government credits new rules adopted in 2012 for making it cheaper for firms to lay off workers and limiting the power of unions to negotiate collective-bargaining agreements across entire industries or regions for the recovery.

SEE ALSO: What recovery? Spaniards reject government spin

The IMF said Spain needed to adopt “additional reforms” to take advantage of the economic recovery and reduce the unemployment rate, which stood at 22.4 percent in the second quarter, the second-highest rate in the eurozone after that of bailed-out Greece.

It recommended further reforms of the labour market as well as measures to address the lack of competitiveness of Spanish firms.

The IMF maintained its forecast of economic growth of 3.1 percent in Spain this year, slightly below the 3.3 percent expansion predicted by the Spanish government.

It sees the Spanish economy, the eurozone's fourth largest, expanding by 2.5 percent in 2016 while the government predicts growth of 3.0 percent.

While positive for Spain the latest Eurostat data showed that France’s struggling economy had stagnated in the second quarter of 2015 in contrast to their German neighbours.

The German economy, Europe's biggest, grew by 0.4 percent in the second quarter of 2015, fractionally faster than in the preceding three months, but slightly short of analyst expectations.

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Spain’s middle-class youngsters the most likely to end up poor across all EU

Spain leads the ranking of EU countries with the highest risk of young people ending up in poverty as adults, despite coming from families without economic difficulties.

Spain is the fourth EU country with the highest inherited poverty
Spain is EU country with most middle-class young people who end up poor. Photo: Jaime ALEKOS / AFP

Spain is also the fourth EU country with the highest rate of inherited poverty risk, according to Eurostat, the EU Statistical Office.

Data on intergenerational poverty indicates that there is a correlation between the financial situation of the household you grew up in and the risk of being poor when you reach adulthood and in Spain, there is a strong link. 

The latest statistics available from 2019 show that the at-risk-of-poverty rate for the EU was 23 percent among adults aged 25 to 59 who grew up in a poor financial situation at home when they were 14 years old. This is 9.6 percentage points more than those who come from families without financial problems (13.4 percent). 

READ ALSO: Spain’s inflation soars to 29-year high

How the situation in Spain compares with the EU

Spain has become the EU country with the highest risk of poverty among adults who grew up in families with a good financial situation  – 16.6 percent.

This was followed by Latvia with 16 percent and Italy with 15.9 percent.

That statistics also show the countries where it is less likely to be poor after growing up in households without economic difficulties. These include the Czech Republic (5.9 percent), Slovakia (7.9 percent) and Finland (8.5 percent).

The overall poverty rate in the EU decreased by 0.1 percentage points between 2011 (13.5 percent) and 2019 (13.4 percent), but the largest increases were seen in Denmark (1.9 points more), Portugal (1.8 points), the Netherlands (1.7 points) and Spain (1.2 points).  

On the other hand, the biggest decreases in the poverty rate were seen in Croatia (-4 percent), Lithuania (-3.6 percent), Slovakia (-3.5 percent) and Ireland (-3.2 percent).

READ ALSO: Spain’s government feels heat as economic recovery lags

Inherited poverty

The stats revealed that Spain was also the fourth country with the highest rate of inherited poverty risk (30 percent), only behind Bulgaria (40.1 percent), Romania (32.7 percent) and Italy (30.7 percent).

This means that children of poor parents in Spain are also likely to be poor in adulthood. 

The countries with the lowest rate of inherited poverty risk were the Czech Republic (10.2 percent), Denmark (10.3 percent) and Finland (10.5 percent).

The average risk-of-poverty rate for the EU increased by 2.5 percentage points between 2011 (20.5 percent) and 2019 (23 percent), with the largest increases seen in Bulgaria (6 points more), Slovakia and Romania (4.3 points), Italy (4.2 points) and Spain (4.1 points).

The biggest drops were seen in Latvia (-8.5 points), Estonia (-8.0 points) and Croatia (-2.3 points). 

The largest gaps in people at risk of poverty when they reach adulthood were in Bulgaria (27.6 percentage points more among those who belong to families with a poor economic situation as teenagers compared to those who grew up in wealthy households), Romania (17.1), Italy (14.8), Greece (13.5) and Spain (13.4).