Spain’s government feels heat as economic recovery lags

Spain's leftist Prime Minister Pedro Sanchez started the year with a bullish economic outlook. Months later, he faces protests, strikes and an emboldened opposition as the recovery from the pandemic slump trails other European nations.

Spain's Prime Minister Pedro Sanchez gives a speech at the UNESCO headquarters in Paris on November 12th, 2021.
Spain's Prime Minister Pedro Sanchez gives a speech at the UNESCO headquarters in Paris on November 12th, 2021. (Photo by JULIEN DE ROSA / POOL / AFP)

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

The country has since faced sluggish consumption, soaring energy prices and weak growth.

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

Anger over the state of the economy is now starting to spill out into the streets.

Hundreds of auto workers protested in Madrid on Monday to draw attention to the problems the sector faces, while in the southern city of Cádiz metalworkers have been on strike since mid-November to demand wage increases.

As Christmas approaches, truckers have threatened to go on strike to protest against rising fuel prices.

The government had initially forecast the economy would expand by 9.8 percent in 2021, one of the highest figures in the eurozone.

But in April it slashed its forecast to 6.5 percent, as Spain was hit by a third wave of Covid-19 infections. Most economists, however, believe growth will not surpass 5.0 percent this year.

In recent weeks, disappointing data regarding household consumption and investment have been released that have dampened Spain’s economic outlook.

Revised figures show gross domestic product (GDP) expanded just 1.1 percent during the second quarter, less than half of the 2.8 percent initially forecast.

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

“In absolute terms, it’s not so bad, but we could expect better,” said Pedro Aznar, a professor at Spain’s ESADE business school.

He recalled that Spain’s tourism-dependent economy contracted 10.8 percent in 2020, one of the worst results among industrialised countries, so it had “a lot of room to grow”.

Factories closing

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

Analysts blame soaring energy costs, supply chain disruptions and an overreliance on tourism for the slower growth in Spain.

Energy prices have risen across Europe, but the impact has been especially intense in Spain, since it relies heavily on energy imports, and the higher price of gas and electricity has “hurt consumption,” said Aznar.

Higher energy prices have also contributed heavily to inflation, which reached 5.4 percent in October, a 29-year high.

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

dhl truck driver spain madrid
As Christmas approaches, truckers have threatened to go on strike to protest against rising fuel prices. Photo: Oscar del Pozo/AFP

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

Before the pandemic hit in spring 2020, Spain was the world’s second-most popular tourist destination after France.

The government has said it was hoping to attract around 45 million tourist visits this year, approximately half the figure for 2019.

But as of the end of September it welcomed just 20 million, as people continue to limit travel because of the pandemic.

‘Overly optimistic’

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

One of the main beneficiaries of the fund, Spain is set to receive €140 billion ($157 billion) in grants and loans.

Aznar said the slower economic growth will “weaken” the government’s budget forecasts and possibly “create a problem with Brussels”, which enforces EU deficit rules.

Pablo Casado, the leader of the main opposition conservative Popular Party (PP) which currently tops the polls, accused Sanchez of economic “incompetence” during a debate in parliament earlier this month.

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

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

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

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‘Populism always ends in catastrophe’: How Spain has reacted to Italy’s vote

The likely victory of Giorgia Meloni’s far-right Brothers of Italy party in Sunday’s elections has not gone unnoticed in Spain, where voices from across the political spectrum have either lauded or criticised the results.  

'Populism always ends in catastrophe': How Spain has reacted to Italy's vote

Giorgia Meloni’s Brothers of Italy party, which has neo-fascist roots, looks set to form Italy’s most far-right government since dictator Benito Mussolini.

Meloni came top in Italian elections on Sunday, the first exit polls suggested, putting her eurosceptic populists on course to take power at the heart of Europe.

The party has never held office but as of Monday morning, with the count still in progress, it looked set to claim over 44 percent of the vote, making it the clear victor.

It hasn’t taken long for reactions to the Italian elections to pour in from Spain, a country with close cultural and linguistic similarities to Italy.

Spain’s Socialist Prime Minister Pedro Sánchez, who was diagnosed with Covid-19 on Sunday, has not commented publicly yet on Meloni’s likely victory, leaving it instead to Spanish Foreign Minister José Manuel Albares to give his opinions on Italy’s general election results. 

“These are uncertain times and at times like this, populist movements always grow, but it always ends in the same way – in catastrophe – because they offer simple short-term answers to problems which are very complex,” Albares told reporters at a briefing.

Asked if the far-right’s victory in Italy could be “extrapolated” to Spain, the Foreign Minister ruled this out as a possibility. He acknowledged that the results were completely legitimate but added that Meloni’s governance model was closer to Putin’s than to the EU’s. 

“This (Meloni’s) is an authoritarian model that is contrary to the pillars of European construction, which is the basis of our prosperity.”

On the other hand, Ione Belarra, head of far-left party Unidas Podemos, which forms part of Spain’s governing coalition, said that: “The victory of the Italian far right showcases the normalisation of hate speech and the lack of courageous policies that protect the social majority. Spain is not free from experiencing something like this. Now is the time to open up urgent and ambitious debates.”

The reaction has been completely the opposite from Spain’s very own far-right party: Vox.

“Tonight, millions of Europeans have their hopes pinned on Italy,” tweeted Vox leader Santiago Abascal along with pictures of Meloni and him.

“Giorgia Meloni has shown the way forward for a Europe of proud, free and sovereign nations, capable of cooperating for the security and prosperity of all. Avanti Fratelli d’Italia.”

Madrid’s regional president Isabel Díaz Ayuso, a member of Spain’s right-wing Popular Party (PP), criticised the Spanish Socialists’ reaction to the Italian vote by saying “It’s only democracy when those who win are the ones they support”, adding that they should wait to see “in detail” what Meloni’s government has to offer. 

Madrid’s divisive leader said the Italian election vote shows how the strategy of “joining Socialists with the far left is a disaster that will lead to their demise”. 

On the other hand, Alberto Núñez Feijóo, PP party leader and presidential candidate for Spain’s 2023 general elections, took a more cautious approach, arguing that it was “not the result we were most in favour of”, whilst stating that Italian voters “had clearly manifested their position” and that the new Italian government should “bring stability” not only to Italy but to the whole of the EU. 

READ ALSO: Who is Giorgia Meloni, Italy’s likely next prime minister?