At the same time, employment gains are increasingly concentrated in higher-value-added sectors such as professional services, finance, and information and communications technology. In Spain, those types of jobs have increased more than 20% since 2019, roughly double the rate in France or Italy, Taddei writes.
And they appear to be connected to stronger productivity growth.
“Spain’s recent outperformance likely reflects a gradual improvement in the quality—not only the quantity—of labor demand,” writes Taddei.
How is Spain lowering its debt-to-GDP ratio?
Spain has also taken a forceful fiscal approach to the surge in oil and natural gas prices triggered by the conflict in the Strait of Hormuz. Even though the Mediterranean nation is the least exposed of Europe’s top four economies to the hydrocarbons crunch, Spanish policymakers have provided a range of tax cuts and other measures to help households and businesses.
The additional spending, which exceeds similar programs in Germany, France, and Italy, did not undermine the government’s broader fiscal position, writes Taddei. A key reason was the government’s decision to not prioritize a defense buildup. This policy has preserved the nation’s credibility with the bond market, and Spain is now the only nation among the EU’s top four expected to lower its debt-to-GDP ratio over the next three years, writes the economist.
Will Spain’s tourism industry slow down?
As the summer holiday season begins, Taddei is keeping an eye on what happens with tourism, a sector that accounts for 12.6% of GDP, according to estimates from the National Statistical Institute. Taking into account the share of international tourist arrivals by air in total spending, Taddei finds that every 10% reduction in tourist arrivals by air could lower GDP by about 0.3%.
And while the government has managed to shape fiscal policy and reduce the deficit, the Spanish government has not been able to pass a full-fledged annual budget since a snap election in 2023, writes Taddei. Now, with an election expected next year, investors are bound to turn their focus back to politics.
“Prolonged political uncertainty would likely reduce investors’ confidence in the continuing transformation of the Spanish economy and weaken the case for our constructive outlook,” writes Taddei.
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