The economy's persistent weakness

The OECD is the bearer of bad news for the Spanish economic recovery and of reasonably good news about the solvency of national finances. In its latest report on the economic prospects of the world's industrialized nations, it confirms its forecast that the Spanish economy will this year grow by 0.9 percent of GDP (four-tenths of a point below the government's estimate). This means that the jobless rate will remain above 20 percent. The prospects for next year are somewhat better, with growth forecast to come in at 1.6 percent, although this figure is two-tenths of a point below an estimate the OECD made in September, while unemployment is seen at 19.3 percent. This means no departure from a script in which the Spanish economy will considerably lag behind others in the recovery, with growth lacking the impetus to create jobs.

What's more, the OECD suggests that the jobless rate of 8.9 percent prior to the start of the crisis will not be seen again until 15 years down the road. Perhaps this projection is overly pessimistic, but the analysis on which it is based is acceptable, and well focused as regards the next two years. With domestic demand — in particular consumer spending - very weak, and with the contribution of the export sector insufficient to get the economy moving again, it is difficult to imagine employment growing in a significant way within a not-too-distant timeframe. The factors that drive demand are also not in place as a result of the policy of fiscal consolidation both by the central government and the regions.

Thankfully, the OECD focuses on the issue of budgetary stability. The organization believes Spain will meet its 2012 budget deficit target of 4.4 percent of GDP, although it expects it to be three-tenths of a point above the target for this year at 6.3 percent. This is significant because one of the reasons the risk premium has widened in the past few days has been the presumption that the deficit will fall short of target by almost a point.

The OECD's forecasts offer little relief from existing doubts. The Spanish government has to make sure the deficit target is reached (the OECD knows that Spain has room to hike taxes) and complete pending reforms. Financial reform has dragged on more than it should have, while employers are due to sign the makeover of the collective bargaining system at the start of June, otherwise the government will have to act by decree. The most pressing task is to avoid compounding a situation of political confusion with a solvency crisis.