A Slow Recovery for Spain's Economy

1.         In recent years, Spain’s economy has been suffering with an extremely high unemployment rate of around 27%. Fortunately, according to an article written by David Román of the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303678404579533123626167180), Spain’s economy is on the rise.  The article states that “Spain's economy grew at its fastest quarterly pace in six years, driven by stronger internal demand, but may struggle to sustain the growth in coming months because of stubbornly high unemployment and the risk of deflation.”. This opening statement is a good precursor into the overall theme of the article because it mentions that although Spain’s economy is improving, there are factors that are still inhibiting it from growing. This first quarter growth equates to an annual growth rate of about 1.6%( A number calculated by the Wall Street Journal since Spain does not release annualized growth rates) and signifies a significant growth since Spain’s property bust in 2008 which required a bank bailout from the European Union.

            However, even though this signifies growth, the magnitude and significance of the growth may be misleading due to some factors. Due to the increase value of the euro, Spain’s export sector has fallen as well as the construction business that, according to the article, has lost “1.78 million jobs since 2008”. Since there are still factors hindering Spain’s economic growth, primarily the high unemployment rate, many economists predict Spain’s economy to rise much slower with predictions estimating that Spain’s economy will only grow 1% in 2014 and that unemployment will remain above 20% until 2017. Spain is also suffering from deflation, which is keeping large sectors, such as the manufacturing sector, far from reaching its full capacity.

2.         This issue can be related to the GDP models that we learned about in class. As stated in the article, exports went down, which according to the GDP equation (GDP= C + I + G + (Ex – Im)), would lower the overall GDP. The article also mentioned the high unemployment, which lead to less consumption. Lowered consumption also leads to a lower GDP and an example was given when a customer in a ZARA clothing store was interviewed leaving with one bag saying ““It's hard to tell that things are getting better just yet," said Gema García, a shopper who left the store with one bag. "This I only bought as a present, because I have to."”. Investment and Government Spending were also affected according to the article. Investment was affected by the low inflation rate causing the private sector to struggle and the government spending was affected by the reduced amount of construction workers. The article provides an example which affects every category of the GDP equation in a negative way, but there are also parts of the economy that are rising which attributed to the economic growth in Spain.

3.         The article mentions that one of the main causes of this problem was the property bust in Spain in 2008. This property bust initiated the increase in the unemployment rate in Spain and the decrease of the economy. A solution to this problem was a Spanish bank bailout by the European Union, but the damage had already been done and Spain’s economy has been recovering slowly ever since. The only solution that I could think of myself is to find ways to increase tourism and use that as a way to increase consumption. Also, Zara clothing as well as Spain’s sports teams are doing well, so maybe there is a way to advertise each more to help increase exports in the textile industry.