Seven years after property crash, the central bank has hailed economic growth of 2.8%. But not all the signs are positive

Seven years after its calamitous property crash in 2008, Spain’s recovery is speeding up, according to the country’s central bank.

The Bank of Spain announced on Thursday that economic growth this year would be 2.8%. That would double last year’s figure, which was the first time the country had recorded annual growth since the crisis hit. The latest prediction would put the eurozone’s fourth biggest economy among its fastest-growing ones — behind only Ireland, Latvia, Lithuania and Malta, according to last month’s predictions from Brussels.

Putting the acceleration down to the falling price of oil and the European Central Bank’s €1tn (£0.73tn) quantitative easing stimulus programme, the Bank of Spain said unemployment should drop to 22.2% by the end of the year, continuing a steady decline from the 26.1% peak it hit two years ago.

With this an election year in Spain, the tone in Madrid has turned triumphalist. Last month the finance minister predicted the country would enjoy five years of growth of up to 3%, while prime minister Mariano Rajoy has declared “the crisis is over” – only to be slapped down by the president of the European commission, Jean-Claude Juncker, who said that could hardly be the case with 4.5 million people out of work. Backtracking, Rajoy said the crisis was over, but not its legacy.

After regional polls in Andalusia handed 15 seats to anti-austerity party Podemos, 2015 is a big year for Spanish politics. There are also municipal elections in Madrid and Barcelona, another regional poll in Catalonia, and then, in November, the general election.

But not all voters share the government’s upbeat outlook. On the day the country’s economic minister, Luis de Guindos, gave his optimistic five-year forecasts to an audience of businesspeople, the national statistics office published a survey showing that four out of every five Spaniards believe the economy is in the same or worse state than last year and over half don’t believe things will improve in 2016.

As more and more people pass the two-year cut-off for unemployment benefit, the number of beggars on the streets of Madrid and Barcelona is growing, many of them middle-aged, while an estimated 1.5 million Spaniards are now relying on soup kitchens for food.

So what is really happening?

“Spanish macro data has been good since the summer of 2013,” says Javier Díaz-Giménez of Madrid’s IESE Business School. “But this is part of the business cycle and has nothing to do with the government.”

He dismisses De Guindos’ prediction of five years of growth as “bull” but adds that he believes the nation’s recovery is real and says Spanish companies have been creating jobs at a rate of over 400,000 a year.

A recent study has shown that less than 10% of the jobs created over the past three years are either permanent or full-time, but Díaz-Giménez cautions against undue pessimism. “Temporary and part-time are adjectives,” he says. “First we do the nouns. Spain is not ready for adjectives.”

Julia Fossi of the Barcelona soup kitchen Esperanza (the Spanish word for “hope”) says there has been a notable rise in the number of Spaniards sleeping on the street. “The average age is around 40 to 50,” she says. “People are evicted from their homes and sleep in entrances of banks. We had one woman who had been thrown out of her home who was sleeping in La Caixa with her cat.”



Edward Hugh, a Welsh economist based in Spain, says: “The economic situation is perceived by most Spaniards as being so bad that even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it.”

“Spain has in the past few years attracted investment but these people have been buying equities and bonds and distressed real estate.”

After an eight-year slump, the real estate sector is picking up. “The second half of 2013 proved to be a turning point for Spain’s commercial and residential markets, but this has largely been confined to the prime or luxury segment within each sector,” says Kate Everett-Allen of Knight Frank LLP’s international department.

Spanish house prices rose 1.8% in 2014, the first rise in six years – although in real terms, the accumulated fall in house prices since 2007 is still 44%.



The moribund construction industry is also showing signs of life as banks invest in completing the thousands of half-finished building projects that litter the country in order to have some prospect of selling off their toxic property assets.

“We have done an internal devaluation,” says Díaz-Giménez. “Spaniards have accepted a wage freeze or wage cuts and Spanish companies have become more competitive. The recession has been so long that everyone has fired everyone they could so now if a company has any growth they have to hire.”

But if the recovery should be good news for Rajoy, the rise of anti-austerity party Podemos on the left and Ciudadanos on the right means Spain now looks set for a period of coalition government. While Podemos is unlikely to form a government, it will probably get enough votes to have a say in economic policy.



It is expected to demand an end to “full recourse” mortgages — where those whose homes have been repossessed have to go on paying the debt – as well as a universal minimum wage and the repeal of recent labour reforms.

“We can have a government that works for people and not for the banks,” Pablo Iglesias, the Podemos leader, said. Injections of funds from Brussels, he argues, “only benefit those at the top while the workers have to suffer the effects of austerity that has been a social disaster”.