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March 28, 2007
Spain, economic growth and the immigration dilemma
Recent articles on Bloomberg and Financial Times present the unsustainable growth that has made Spain deserve the nickname Iberian tiger. Whether the growth will decrease softly or lead to a collapse is arguable. J.Pozuelo-Monfort gives some additional color.
Spain has been, with Ireland, the success story in terms of economic growth of the EU over the last 10 to 15 years. But Ireland is different. It is a small country with a population that equals the metropolitan area of Madrid. And most important, it has the lowest corporate rate of the EU at 12.5%, which has mainly driven the headquarters of many corporations.
Spain is the outperformer of the big five nations in Europe. It is the outperformer because of the EU structural funds it has received. It is the outperformer because of the expansion of credit and the real estate boom. And it has created 50% of the employment in the EU in 2006 and 20% of the growth. But there are still many questions. The growth is not sustainable. With a large trade deficit (imports well above exports) and one of the worst productivity growths in the EU, many argue the experienced rates of growth are not sustainable. With debt levels at historical highs and rising interest rates, financial pressure is impacting much of the immigration that has enabled the country to grow at this pace. And fears that many will default are increasing, in view of the subprime fiasco in the United States.
There is no wide consensus as to whether economic growth will slow down softly or suddenly burst, but in any case those who came to Spain to work hard and earn a decent living stand in the most delicate situation.
Posted on 28 March 2007 in Development
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