Spain: Unemployment rate tumbled 2.8ppt in 4 quarters - ING

The gains observed in the Spanish labour market epitomise the impressive recovery as the unemployment rate decreased from 20% in 2Q16 to 17.2% in 2Q17, according to Geoffrey Minne, Economist at ING.

Key Quotes

“After the seasonal decrease in employment observed in 1Q, the latest quarterly labour report revealed strong job creation in 2Q: +375K QoQ (+512K YoY). This represents an increase of 2.8% YoY and the 13th consecutive quarter of expansion of total employment on a yearly basis. The unemployment rate went from 18.75% in 1Q to 17, 22% in 2Q, meaning that 341K people left unemployment in the second quarter. In the last four quarters, the number of unemployed has decreased by 14% and this quarter is the eighth consecutive quarter showing a double digit decrease. The labour market is notably benefitting from the cyclical recovery experienced by the Eurozone and the lengthening of the accommodative monetary policy of the ECB. The government is targeting an unemployment rate under 12% by the end of 2020 and this objective might not be a fantasy any more, looking at the current trajectory.”

“Looking at the details, in 2Q no sector contributed negatively to job creation on a yearly basis: services +244K, construction +56K, industry +140K, agriculture +72K. Good news is that the increase is not only concentrated on temporary jobs - the number of employees with a permanent job increased by 1.8% YoY. On top of that, long term unemployment and the problem of hysteresis seem to be in decline: the number of workers who lost their job more than 1 year ago decreased by nearly 20% in the last four quarters.”

“The private-public dimension unveils two different situations. On the one hand, employment in the public sector only increased marginally, by 0.3% YoY, and seems to be limited by political measures in favour of budget orthodoxy. On the other hand, employment in the private sector increased by 3.3% YoY and seems enhanced by past pro-business reforms. As a consequence, for the government direct taxes revenues should increase while expenditures should remain under control. Continuing in this vein should allow the government to bring the public deficit back around 3% by the end of the year and the European Commission to close the "excessive deficit" procedure launched in 2009.”

“Of course, a seasonal effect comes into play but even after taking this into account, total employment still increased by 0.85% QoQ. The second quarter kick-started the summer season and therefore triggered the creation of many temporary services jobs. The decomposition of employment gains by autonomous region highlights the fact that the tourist area tops the national average on a quarterly basis: Balearic Islands +13%, Cataluña +2.3%, Canarias +2.3%. That said the number of tourists landing in Spain is breaking records, notably due to the relatively cheap euro and the geo-political instability observed in other Mediterranean destinations. Considering that the global recovery is progressively stepping up and that Spain is endowed with one of the best infrastructures for tourism in the world (in 2017, Spain reached 1st place globally in the global travel&tourism competitiveness index of the World Economic Forum), we can imagine that tourism should continue to foster growth in coming years.”

“All in all, the positive momentum is not expected to stop any time soon in Spain and GDP growth should still rely on consumers seeing their purchasing power increasing.  The faster decrease in unemployment even suggests that this year's GDP growth could even beat the two previous (3.2%).”