OECD Economic Outlook November 2019 Country Note: Spain

 207

Spain The moderation in economic growth in 2019 is projected to continue in 2020 and 2021. Domestic demand will remain the main driver of growth, albeit at a slower pace than in recent years, with moderating employment growth weighing on consumption and heightened uncertainty hindering investment. Lower export market growth will be a drag on exports. Inflation will remain subdued, with continued slack in the economy.

The recent improvements in the public finances largely relied on favourable macroeconomic conditions.

Further improving the structural fiscal balance to allow for a durable reduction in the high public debt-to-GDP ratio is key. To boost potential growth and reduce inequalities, the skills and labour market outcomes of vulnerable groups should be improved. Boosting productivity growth requires firms to be more exposed to competition and innovation.

Growth has moderated Domestic demand has been less dynamic than in recent years, in the context of heightened uncertainty.

Continued job creation, wage increases and low inflation have supported household real disposable income and the recent rise in household saving. A fall in confidence and weak external growth have adversely affected the manufacturing sector, but services continue to perform well. Employment growth moderated recently, but remains around 2%. Trends in housing sales and new loans for house purchases point to a continued slowdown in residential investment.

Spain GDP and employment growth have moderated

Private consumption is weakening but household saving is rising

Y-o-y % changes 4.0

Y-o-y % changes 8 ← Real private consumption

Employment

3.5

Household net saving ratio →

6

Real GDP

% of disposable income 12 10

3.0

4

8

2.5

2

6

2.0

0

4

1.5

-2

2

1.0

-4

0

0.5

-6

-2

0.0

2016

2017

2018

2019

2020

2021

0

-8

2006

2008

2010

2012

2014

2016

2018

2020

-4

Source: OECD Economic Outlook 106 database.

StatLink 2 https://doi.org/10.1787/888934045943

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019

208 ď ź

Spain: Demand, output and prices 2016

2017

Current prices EUR billion

Spain GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation2 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

1 113.8 648.3 212.3 200.0 1 060.6 8.8 1 069.4 377.4 333.0 44.4 _ _ _ _ _ _ _ _ _

2018

2019

2020

2021

Percentage changes, volume (2015 prices)

2.9 3.0 1.0 5.9 3.1 0.0 3.1 5.6 6.6 -0.1

2.4 1.8 1.9 5.3 2.5 0.2 2.7 2.2 3.3 -0.3

2.0 1.2 2.3 2.8 1.7 0.0 1.8 1.6 1.0 0.3

1.6 1.8 1.6 3.6 2.1 0.1 2.2 1.3 3.0 -0.5

1.6 1.3 1.1 3.0 1.6 0.0 1.6 2.2 2.5 0.0

1.4 1.1 1.6 1.1 1.3 2.0 1.7 0.8 1.1 1.3 1.2 1.0 1.1 1.3 1.3 17.2 15.3 14.2 14.1 13.6 1.2 1.5 2.3 2.6 3.0 -3.0 -2.5 -2.2 -1.8 -1.4 115.8 114.8 114.3 114.0 113.2 98.6 97.6 96.6 96.4 96.2 2.7 1.9 1.6 1.3 1.2

1. Contributions to changes in real GDP, actual amount in the first column.

2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco.

Source: OECD Economic Outlook 106 database.

StatLink 2 https://doi.org/10.1787/888934046874

Boosting productivity growth is key Monetary policy in the euro area will remain accommodative, fostering investment and consumption via lower lending rates. Political uncertainty creates ambiguity over the future fiscal stance, which is assumed to be broadly neutral in the coming two years. As the public debt-to-GDP ratio remains high at 96%, further improvements in the structural balance are needed to ensure a durable reduction of public debt.

Higher potential growth can also help to improve fiscal sustainability and increase resilience to shocks.

Productivity growth would be supported by boosting skills, competition and innovation. Targeted active labour market policies could help low-skilled workers to improve their labour market prospects, lowering inequalities. Introducing a single point of contact for employment and social services to provide integrated support for jobseekers would improve coordination. Training in digital skills should be targeted to lesseducated and low-income individuals, whose jobs might be more at the risk of automation. Further increasing the coordination and evaluation of regional and national innovation policies would raise the quality of innovation. Ensuring the effective implementation of prior structural reforms addressing the internal fragmentation of product markets is key to creating economies of scale.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019

 209

Growth is set to slow Growth is projected to moderate to 1.6% in 2020 and 2021. Domestic demand will remain the main driver of growth. As the effect of pent-up demand subsides and household saving continues to increase, private consumption will moderate. Employment growth is projected to slow, but the unemployment rate is set to decline further to 13.6% in 2021. Business investment will be less dynamic than in the past, but will be supported by high capacity utilisation and favourable financing conditions. The contribution of net exports to growth will be negative in 2020, in the context of weaker export market growth, and neutral in 2021.

A key downside risk is lower-than-projected growth in Europe, Spain’s main export destination, which would lower exports. Brexit could adversely affect the tourism sector. Consumption growth might turn out weaker than expected, if the slowdown in employment growth is stronger or if uncertainty persists.

Alternatively, given strong fundamentals, investment could be higher if uncertainty decreases, boosting business confidence.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019