OECD Economic Surveys Spain

1 OECD Economic Surveys Spain March 2017 OVERVIEW This Overview is extracted from the 2017 Economic survey of Spain . The survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the Economic situation of member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area OECD Economic Surveys : Spain OECD 2017 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given.

2 All requests for public or commercial use and translation rights should be submitted to Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation du droit de copie (CFC) at OECD Economic Surveys : Spain OECD 20179 Executive summary The recovery is underway but making growth more inclusive remains a challenge Fostering innovative business investment is crucial to unlock productivity growth Reducing unemployment and improving job quality can make growth moreinclusiveEXECUTIVE SUMMARYOECD Economic Surveys : Spain OECD 201710 The recovery is underway but making growth more inclusive remains a challengeGrowth is gathering paceReal GDP, index Q4 2007 = 10011.

3 Euro area member countries that are also members of theOECD (16 countries).Source:OECD ( 2017 ),OECD Economic Outlook: Statistics andProjections(database), 2 is enjoying a robust recovery from adeep recession, with GDP growth averaging the past three years. A wide range ofstructural reforms has contributed to sustainablerises in living standards. Highly accommodativeeuro area monetary policy, low oil prices and, morerecently, expansionary fiscal policy have allsupported domestic demand. Exports have been aparticular bright spot, as Spain has resisted theslowdown in global export growth. However,raising well-being and GDP per capita, particularlyvia productivity increases, and making growthmore inclusive remains a innovative business investment is crucial to unlock productivity growthSpanish productivity growth is lowAverage annual multifactor productivity growthbetween 2008-15, percentageSource:OECD (2016), OECD Economic Outlook No.

4 100,Volume 2016 Issue 2 ,OECD Economic Outlook: Statistics andProjections(database), 2 has long suffered from very lowproductivity growth, which has restrainedincreases in living standards. Misallocation ofcapital towards low productivity firms andunderinvestment in innovation have draggeddown productivity, although more recently capitalallocation has been improving. Policies to foster abetter allocation of capital and higher productivityinclude reducing regulatory barriers in productmarkets that are holding back competition,encouraging higher investment in R&D andinnovation and ensuring that capital goes to awider set of innovative firms. Reducing entrybarriers and improving framework conditionswould also help to foster green unemployment and improving job quality can make growth more inclusiveUnemployment remains very highPercentageSource:OECD ( 2017 ),OECD Employment and Labour Market Statistics(database), February and Eurostat ( 2017 ), Employment andunemployment (Labour Force survey ) ,Eurostat Database, 2 unemployment rate is gradually fallingdown thanks to stronger growth, but it remainsvery high, particularly among the young and long-term unemployed.

5 The high share of long-termunemployed risks loss of skills, disaffection andalienation. Poverty has also risen, mainly due tolack of quality jobs that provide enough hours ofpaid work to support decent incomes. Part of theanswer is continued strong Economic growth, butstrengthening training and job placement andbetter minimum income support are 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SpainFranceGermanyPortugalUnited KingdomEuro area 2002 2004 2006 2008 2010 2012 2014 2016 Unemployment rateYouth unemployment rateShare of long-termunemployment (over 1 year)EXECUTIVE SUMMARYOECD Economic Surveys .

6 Spain OECD 201711 MAIN FINDINGSKEY RECOMMENDATIONSM acroeconomic policiesIn addition to other factors, structuralreforms have contributed to theeconomic recovery and to undertake structural reforms towards solid and debt is high and there are risksaround its future to medium-term fiscal targets to ensure a gradual reduction ofpublic tax system is characterised byloopholes that undermine the taxbase. Environmental tax revenue hasdeclined in real terms since the efficiency of the tax system by: Abolishing poorly-targeted personal income tax exemptions. Abolishing regressive reduced value-added tax (VAT) rates. Increasing environmental unemployment and making growth more inclusivePoverty and child poverty remain highand small and poorly targeted cashtransfers do little to reduce the amount and coverage of the regional minimum incomesupport programmes and of cash benefits for families with unemployment rate is decreasing,but at nearly 19% remains very to half of all unemployed havebeen unemployed for more than the efficiency of regional public employment services by: Employing profiling tools and specialisation of counsellors.

7 Increasing resources and staff-to-job seeker ratios. Improving co-ordination to provide integrated support forjobseekers via a single point of contact for social and employmentservices and and employment conditionsimposed by extensions of collectiveagreements can be too stringent fornew firms to effectively compete withestablished gradually increased representativeness of businessassociations when allowing the extension of collective employer social securitycontributions raise the tax on labour,discouraging employer social security contributions for low-wage workerson permanent skills are poor dragging downproductivity growth. The early schoolleaving rate is falling, but remains the quality of teaching through better university andon-the-job training for 40% of youth are unemployed,and many of them have the development and modernisation of vocationaleducation and training (VET).

8 Expand dualVET and ensure skills meetfirms needs by fostering a greater role of employers in trainingstudents and designing theVET system and adult education programmes to help theunemployed and those in need to gain relevant innovative business investmentStructural bottlenecks are holding to implement the Market Unity Law and adopt theprofessional services in knowledge-basedcapital is holding down productivitygrowth. Research and development(R&D) spending by firms is low andthere is a high brain drain of reallocate funds from loans to R&D grants to projects andresearchers based on performance and international peer of capital to lowproductivity firms within sectors isholding down productivity cases when debt forgiveness is not automatic, reduce the periodduring which bankrupt entrepreneurs are required to repay past debtfrom future up small and medium-sized enterprises (SME) bond funds withguarantees provided both by government and SME public and private funding for innovative firms at the seedand early start-up Economic Surveys .

9 Spain OECD 201713 Assessment and recommendations The Economic recovery is set to continue at a healthy pace Bolstering the financial sector to raise credit growth Fiscal policy Making growth more inclusive by reducing unemployment and improvingjob quality Improving medium-term sustainable growthThe statistical data for Israel are supplied by and under the responsibility of the relevant Israeliauthorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights,East Jerusalem and Israeli settlements in the West Bank under the terms of international AND RECOMMENDATIONSOECD Economic Surveys : Spain OECD 201714 Spain s Economic recovery, underway since 2013, has been one of the strongest in theOECD thanks to a wide-ranging agenda of structural reform (Box 1), highly expansionaryeuro area monetary policy, easier fiscal policy, and significant repair of the banking growth and wage moderation have led to strong employment gains, bringingdown unemployment from very high levels and providing consumers with more have grown strongly despite weak global markets, reflecting improving wagecompetitiveness and have helped turn a current account deficit into a surplus.

10 Furthereconomic growth at a pace above 2% annually is likely in the short ahead, maintaining the current pace of growth and increasing livingstandards will require continued reforms to consolidate the recovery of the economy andto improve the economy s growth potential, which has fallen substantially. With publicdebt around 100% of gross domestic product (GDP) and with the deficit still close to 5% thescope for fiscal expansion is limited, which means that new spending measures should beas fiscally neutral as possible. It is nevertheless important to stimulate growth andproductivity by shifting spending towards growth enhancing items, such as education,active labour market policies and research and development (R&D) which are all belowBox of Spain s most recent reformsBanking sectorTo restore financial stability, the authorities launched a reform programme with the support of theEuropean Union (EU) in 2012, including a EUR 100 billion loan facility (of which only EUR 40 billion wasused).