Confidence grows as ‘moment of crisis’ passes
Consumer sentiment about the strength of the national economy, their own purchasing power and their future is gaining strength – even though unemployment remains high and GDP growth is slow.
There is a growing sense that the worst is behind them, with 22 percent of Spanish consumers now saying, “Things are going well financially in my country”, up from just 6 percent in 2014, though still well behind the global average of 43 percent. When asked about their own personal financial situation, 71 percent say things are going well (up from 64 percent in 2014), a level of optimism likely to stem from a recent decline in unemployment.
The proportion of people out of work is among the highest in Europe, and is a major problem among young people and the long-term unemployed. Yet growth in industry and in the services and construction sectors means there are rapidly growing numbers of people in work, and they’re increasingly going into steady jobs rather than occasional work. The national unemployment rate is still high – it was 14.55 percent in Q3 2018 – but this was a significant improvement over the rate of 16.7 percent just six months earlier.
Economic growth for 2018 was expected to finish at around 2.6 percent and decline slightly, to 2.1 percent in 2019, a rate not un-adjacent to the growth rates predicted for Germany, France and the UK, but still low by world standards. The global average is expected to be 4.7 percent growth in 2019.
Export growth has slowed, but domestic demand, supported by low interest rates and rising employment, is what’s currently powering the economy and is expected to be its main driver in the coming few years. OECD analysis shows that to boost growth, reforms need to be made to improve productivity, increase competition and innovation and improve skills, which would in turn generate higher-paying jobs.
The economic situation in Spain is complicated by political uncertainty. Pedro Sánchez became Spain’s prime minister in June 2018 after his predecessor, Mariano Rajoy, was forced out over a campaign funding scandal.
Months later, the far right secured its first seats in a Spanish assembly since the 1970s, with the Vox party, which wants a tougher line on immigration, gaining 12 seats in the Andalusian regional parliament. Vox is also a vocal critic of the push for independence in Catalonia.
The An independence referendum in the region was declared illegal, leading to the regional president Carles Puigdemont being sacked and living in self-imposed exile. Direct rule of the region from Madrid followed for seven months, before a new regional government was sworn in, in mid-2018.
Yet despite all this, confidence is ticking along among consumers, who perhaps are becoming used to living with uncertainty.
The Kantar Millward Brown Consumer Perspectives Report shows that the Consumer Behavior Index first entered positive territory at the end of 2017 and continued rising apace in 2018. The index reflects people’s confidence in their financial situation, and their willingness to spend on big-ticket items.
The study shows that there is no longer a sense of being in a “moment of crisis”; over half the population now thinks strong recovery will come sooner rather than later. Now is also the first time since the crisis of 2008 in which more people say it’s a good time to spend on things like cars, holidays and housing than who say it’s better to wait.
OECD data shows that business investment continues to grow, supported by the low cost of borrowing and improved profit margins.