2014 OECD ECONOMIC SURVEY OF SPAIN

www.oecd.org/eco/surveys/economic-survey-spain.htm

ON THE ROAD TO RECOVERY 8 September 2014, Madrid, Spain

Main Findings

Structural reforms (labour market, banking, fiscal) have put the economy on the road to recovery.

1. Reforms have improved labour market performance even though

unemployment rate is still too high.

2. Innovation, especially by business is too low, and talent is under-utilised.

3. In spite of recent competitiveness gains, barriers to entrepreneurship remain high.

4. The banking sector has improved but credit is too low and firms need access to other sources of financing.

Key Recommendations

1. Strengthen job search assistance and vocational training and improve the tax mix. 2. Raise living standards by increasing innovation and enhancing skills. 3. Streamline regulations and reduce barriers to start and grow firms.

4. Improve insolvency procedures and promote diversified financing sources.

Reforms are paying off

1. Real house prices seasonally adjusted. The peak occurs in Q1 2007 for Ireland, Q3 2007 for Spain and Q4 2006 for the United States.

Source: OECD (2014), OECD Economic Outlook: Statistics and Projections (database) and Housing Prices Database.

• GDP growth has resumed

• The unemployment rate has started to fall

• Unit labour costs have fallen improving competitiveness

• Exports have led the recovery

• The current account has improved

707580859095

100105110115

2001 2003 2005 2007 2009 2011 2013

2001 = 100E. Export performance

Ratio of export volumes to export markets

95100105110115120125130135

2001 2003 2005 2007 2009 2011 2013

2001 = 100 D. Unit labour cost Total economy

2030405060708090

100110

-64 -56 -48 -40 -32 -24 -16 -8 0 8 16 24

Peak = 100

Quarters from peak

C. House prices1

SpainIrelandUnited States

95

100

105

110

115

120

125

2001 2003 2005 2007 2009 2011 2013

2001 = 100A. Gross domestic product

Volume

Spain Germany

0

5

10

15

20

25

30

2001 2003 2005 2007 2009 2011 2013

Per centB. Unemployment rate

France Portugal

-15

-10

-5

0

5

10

2001 2003 2005 2007 2009 2011 2013

% of GDPF. Current account balance

Debts are still high

• The budget situation has improved, but public debt is still high and rising.

• Private debt is falling. Firms face difficulties to obtain financing.

1. Debt is calculated as the sum of the following liability categories, whenever available/applicable: currency and deposits, securities other than shares (except financial derivatives), loans, insurance technical reserves and other accounts payable.

2. Including non-profit institutions serving households. Source: OECD (2014), “Financial Dashboard”, OECD National Accounts Statistics (database), July.

1 http://dx.doi.org/10.1787/888933127947

40

60

80

100

120

140

160

1999 2001 2003 2005 2007 2009 2011 2013

A. Household debt2

% of gross disposable income

Spain Germany France

80

100

120

140

160

180

200

220

240

1999 2001 2003 2005 2007 2009 2011 2013

B. Debt of non-financial corporations % of GDP

Italy Portugal

Fiscal transparency is increasing

Contingent Liabilities

Source: Government of Spain (2013), Actualización del Programa de Estabilidad 2014-2017 (Stability Programme Update).

For example, there is more information available today about the full extent of public debt.

The labour market has started to improve

• Spain’s unemployment (24.5%) and youth unemployment rate (55%) are high but are starting to fall; Long-term unemployment is also high.

• Many unemployed are ill-equipped to benefit from the recovery and are vulnerable to becoming permanently unemployed

1. Persons unemployed for more than one year as a percentage of total unemployed.. Source: OECD (2014), OECD Economic Outlook: Statistics and Projections and OECD Employment and Labour Market Statistics (databases), and OECD Short-Term Labour Market Statistics Database.

Per cent

0

5

10

15

20

25

30

2003 2005 2007 2009 2011 2013

A. Unemployment rate

Spain OECD Euro area

55

60

65

70

75

2003 2005 2007 2009 2011 2013

B. Employment rate

0

10

20

30

40

50

60

2003 2005 2007 2009 2011 2013

D. Youth unemployment rate (age 15-24)

0

10

20

30

40

50

60

70

2003 2005 2007 2009 2011 2013

C. Incidence of long-term unemployment1

The recession has raised inequality and poverty

1. The Gini coefficient of household income has a range from zero (when everybody has identical incomes) to one (when all income goes to only one person). Increasing values of the Gini coefficient thus indicate higher inequality in the distribution of income.

2. Relative income poverty is the share of people living with less than 50% of the median equivalised household disposable income.

Source: Eurostat (2014), “Income Distribution and Monetary Poverty”, Eurostat Database and OECD (2014), OECD Income Distribution Database.

-0.04

-0.03

-0.02

-0.01

0.00

0.01

0.02

0.03

0.04

ISL

PRT

NLD

DEU

CHE

IRL

POL

NOR

EST

CZE

ITA

FIN

GRC

EU27

GBR

BEL

SVN

LUX

SVK

HUN

AUT

SWE

DNK

ESP

FRA

A. Change in inequality between 2007 and 2012, % points1

-3

-2

-1

0

1

2

3

4

EST

PRT

GBR

CHL

NZL

FIN

AUS

ISL

KOR

USA

DNK

NOR

IRL

OECD JP

NDE

UCA

NCZ

EME

XBE

LIT

ASV

NFR

AIS

RLU

XPO

LNL

DGR

CSW

ESV

KES

PAU

TTU

RHU

N

B. Change in the relative poverty threshold between 2007 and 2011, % points2

Spain had the 2nd highest rise in inequality in Europe from 2007 to 2012… …and one of the highest increases in relative poverty

Labour market activation policies and training

1. Active measures in Panel A cover public employment services and administration, training, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives. Passive measures in Panel B cover out-of-work income maintenance and support, and early retirement.

2. 2008 for Chile in Panel A. 3. 2011 for Australia, Ireland, Israel, Luxembourg, Poland and Spain; 2009 for the United Kingdom in Panel A; 2010 for Greece and the United Kingdom in Panel B. Source: OECD (2014), OECD Employment Outlook 2014.

1 http://dx.doi.org/10.1787/888933128612

Training needs are high. Around half the unemployed have lower secondary education or less. Unemployment more than doubled since 2007 but spending on job search and training only rose 10%. Public spending is skewed towards income support measures.

Public expenditure, % of GDP1

0.0

0.5

1.0

1.5

2.0

2.5

MEX

CHL

USA

ISR

JPN

CAN

SVK

CZE

SVN

NZL

EST

AUS

KOR

POL

GBR ITA

PRT

NOR

OECD CH

ELU

XDE

UHU

NAU

TBE

LES

PFR

AIR

LNL

DFI

NSW

EDN

K

A. Public employment services and training

2007² 2012³

0.0

0.5

1.0

1.5

2.0

2.5

3.0

MEX

CHL

CZE

KOR

GBR

POL

JPN

NOR

NZL

USA

HUN

SVK

EST

AUS

ISR

CHE

CAN

LUX

SWE

GRC

SVN

OECD DE

UAU

TFR

AFI

NIT

APR

TDN

KNL

DBE

LIR

LES

P

B. Income support

Innovation needs boosting

1. 2001 for Sweden. 2. Triadic patents, i.e. those filed at the both the European and Japanese Patent Offices, and granted by the US Patent and Trademark Office. Source: OECD (2014), OECD Science, Technology and R&D Statistics (database), July and NSF (2014), Science and Engineering Indicators 2014, National Science Foundation.

1 http://dx.doi.org/10.1787/888933128403

Overall spending on R&D is low due to low spending by business, especially large firms. The impact of innovation on the economy as measured by patents and other outputs is also relatively low.

0.00.51.01.52.02.53.03.54.04.5

ESP GBR FRA OECD USA DEU SWE

A. Total research and development expenditure

Per cent of GDP2012 2000¹

0.00.51.01.52.02.53.03.54.04.5

ESP GBR FRA OECD USA DEU SWE

B. Business enterprise research and development expenditure

Per cent of GDP2012 2000¹

0

200

400

600

800

1 000

1 200

FRA ESP OECD DEU USA GBR SWE

C. Number of science and engineering articles

Per million population2011 2000

0 10 20 30 40 50 60 70 80

ESP GBR FRA OECD USA DEU SWE

D. Number of patents2

Per million population

Average 2010-12 Average 2000-02

Education and skills need to be better utilised

1. Share of employees with a first and second stage of tertiary education (levels 5 and 6 of ISCED, the international standard classification of education) in non-managerial, non-professional, non-technical occupations (levels 4-9 of ISCO, the international standard classification of occupations).

Source: Eurostat (2014), "Population and Social Conditions", Eurostat Database, July. 1 http://dx.doi.org/10.1787/888933128555

The share of the population gaining tertiary qualifications has increased significantly… … but many graduates work in less-skilled jobs

Source: OECD (2014), Education at a Glance 2014: OECD Indicators.

0

5

10

15

20

25

30

CZE

PRT

HUN

LUX

ITA

SVK

AUT

SVN ISL

DNK

DEU

NLD

POL

NOR

TUR

SWE

EU28

CHE

FRA

FIN

BEL

GRC

EST

GBR

ESP

IRL

Share of tertiary graduates in less-skilled occupations1

Per cent of employees, age 15-64 , 2013

Lower secondary Upper secondary Tertiary

Age 25-34 36 25 39

Age 55-64 65 16 19

Highest educational atttainmentPer cent of population, 2012

Spanish business sector is fragmented

Spanish firms tend to be smaller when starting-up and they appear to grow less than in most advanced economies.

1. Average over the period 2001-11 for Belgium, Canada, Finland, Hungary, the Netherlands, the United Kingdom and the United States; 2001-10 for Austria, Brazil, Spain, Italy, Luxembourg, Norway and Sweden; 2001-09 for Japan and New Zealand; 2001-07 for France; and 2006-11 for Portugal. Owing to methodological differences, figures may deviate from officially published national statistics. For Japan data are at the establishment level, for other countries at the firm level. Data for Canada refer only to organic employment changes and abstract from merger and acquisition activity.

2. Non-financial business services. Source: C. Criscuolo, P.N. Gal and C. Menon (2014), “The Dynamics of Employment Growth: New Evidence from 18 Countries”, OECD Science, Technology and Industry Policy Papers, No. 14.

Average size of firms by age and sector1

Number of employees

0

10

20

30

40

50

60

70

80

USA

LUX

CAN

BEL

FRA

HUN

GBR

AUT

SWE

NOR

BRA

FIN

NLD

PRT

ESP

NZL

ITA

JPN

A. Manufacturing0-2 years old

0

10

20

30

40

50

60

70

80

USA

GBR

BEL

CAN

LUX

FRA

NOR

BRA

AUT

HUN

PRT

SWE

NLD

NZL

FIN

ESP

ITA

JPN

B. Services2

Over 10 years old

Barriers to entrepreneurship remain high

Starting and operating businesses is more difficult than in most OECD countries Firms face both regulations that are unfavourable to their growth as well as a regionally and locally fragmented regulatory framework. Spain has lacked flexibility to re-allocate resources to more dynamic and productive firms.

Index scale of 0-6 from least to most restrictiveBarriers to starting and operating a business1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

SVK

NZL

NLD

ITA

DNK

AUT

PRT

CAN

GBR

DEU

FIN

CHE

EST

AUS

OECD FR

AJP

NHU

NNO

RSW

EBE

LSV

NCZ

EKO

RGR

CIR

LCH

LIS

LES

PIS

R

2013 2008

1. OECD product market regulation indicator on barriers to entrepreneurship. The OECD aggregate is an average of the data shown.

Source: OECD (2013), Product Market Regulation Database, www.oecd.org/economy/pmr.

Exports need further boosting

• Exports have led the recovery but Spain needs to continue diversifying to more dynamic markets.

• There is a also a relative overspecialisation in lower technology products.

• Competitiveness would be further boosted by higher competition in sectors providing inputs to the rest of the economy (e.g. professional services) and in ports and sea transport activities.

Share of exports by destinationPer cent of total goods exports, 2013

0

10

20

30

40

50

60

70

80

GBR GRC ITA IRL DEU FRA ESP PRT

European Union Non-European Union

Source: Eurostat (2014), "International trade long-term indicators", Eurostat Database, September.

Deeper analysis provided in the Survey

Key recommendations on reducing unemployment faster

Activation:

• Improve efficiency of public employment services (new IT and other tools and practices)

• Introduce personalised activation plans

• More clearly define job search and offer obligations • Increase central and regional government coordination, performance based

funding to the regions and spread best practice across regions • Make available new vocational education tracks to the unemployed

Deeper analysis provided in the Survey

Key recommendations on reducing unemployment faster

• Fiscal policy: cut employer social security contributions for low-skilled

workers to stimulate labour demand.

• Wage bargaining options: firm and union representation requirements for collective agreements, “opt-in” rather than opt-out to collective agreements

• Employment protection options: converge termination costs for fixed-term and permanent contracts, further define conditions for fair dismissal

• Housing and labour mobility: rolling periodic leases, means-tested housing benefits, simple arbitration for disputes

Deeper analysis provided in the Survey

Key recommendations on harnessing innovation to sustainably boost growth

• increase stability of government innovation funding • greater specialisation and scale of universities and research

technology organisations • more peer review and performance base funding • streamlining certification for R&D tax credits • wider career opportunities for researchers • industrial PhDs • predictable and low-cost support to low carbon technologies

Deeper analysis provided in the Survey

Key recommendations on skills and talent to sustainably boost growth • prevent drop-outs using new assessment and education paths

• strengthen vocational training

• increase information to students about jobs outcomes from tertiary

education

• improve career guidance

Deeper analysis provided in the Survey

Key recommendations on business sector performance

Facilitating start-ups and business growth: • revamp the licence system and reduce regulatory fragmentation by

implementing the market unity law • broaden the corporate tax base, lower the rate and review firm size-

dependent policies and regulations

Deeper analysis provided in the Survey

Key recommendations on business sector performance

Fostering internationalisation and strengthening competition: • integrate internationalisation and innovation policies • strengthen port and electricity regulators; open access to stevedoring

activities • reduce numbers of professions for which membership of the professional

body is required • reduce vertical integration in the electricity market • pursue efforts to increase judicial efficiency

Deeper analysis provided in the Survey

Key recommendations on business sector performance

Tackling over-indebtedness and improving firms financing: • increase incentives for the use of out-of-court and in-court insolvency

procedures by SMEs • introduce a new out-of-court negotiated personal insolvency regime • continue to promote diversified financing sources • make further use of mutual guarantee schemes • establish a comprehensive credit registry for SMEs

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