Economy Ministry official defends merits of wage moderation

Spain's secretary of state for trade, Jaime García-Legaz, on Thursday said it was a "mistake" to believe that a rise in salaries would guarantee more consumer spending, which would, he argued, come once the labor market recovered.

 Spain pulled out of its longest recession in decades in the third quarter of this year when GDP rose 0.2 percent from the previous three months, with the main driver of the recovery being the export sector, which has benefited from increased competitiveness as a result of downward pressure on wages.

Domestic demand - of which consumer spending is an important component, accounting for about 60 percent of GDP - remains negative. However, household spending grew by a minimal 0.1 percent on a quarterly basis in the period July-September for the first time in six quarters.

Speaking at a forum, García-Legaz said large supermarket chains as well as small retailers have of late noted a pick-up, albeit moderate, in consumer spending "that has nothing to do with Christmas advertising campaigns." He predicted that this trend would gather pace once the economy starts to create jobs next year. The jobless rate in the third quarter stood at just under 26 percent, the second highest in the European Union, after Greece.

"For the first time, the Spanish economy is undergoing a fundamental change"

"What we will see in 2014 is a gradual increase in consumption, which will be reinforced by a recovery in employment, with the two variables closely "linked," García-Legaz said. "Gains in consumption will come from a recovery in employment and the recovery in employment is linked to competitiveness," he added.

García-Legaz said the Spanish export sector stood to gain from a free trade agreement between the United States and the EU, which he believes will soon become a reality. He said the United States was a key market for Spain, pointing to the fact that the free trade talks include public works, in which Spanish firms have a lot of international experience.

"For the first time, the Spanish economy is undergoing a fundamental change," he said. "This is a genuine change and Spain will enter a new stage in terms of overseas trade that will allow it to guarantee growth over the coming years."

He said this change consists of a new productive model that is not dependent on construction, which now accounts for only 3.5 percent of GDP, compared with 10 percent for the export sector.