The end of the Spanish miracle

The 2010 and 2012 competitiveness reforms help explain this outperformance but the share of workers’ wages in national wealth dropped from 54.7% in 2010 to 51.8% in 2017.

In January 2019, Prime Minister Pedro Sánchez increased the minimum wage (Salario Mínimo Interprofesional or SMI) by a whopping +22.3% to rebalance the economy, and partially offset growing social discontent. We estimate that this measure could have a net positive impact of +0.1pp on GDP growth in 2019, but a negative impact of -0.1pp in 2020 as competitiveness drops. Companies’ margins are expected to be indented by -1pp to 42% of value-added, and the measure could also cause around 100 additional insolvencies in 2019, especially in the construction and service sectors, but also among some exporters.

The elections on April 28 will plausibly yield a fragmented political landscape, making structural reforms harder to pass. Our forecasts for Spain point to a deceleration to +2% growth in 2019, and +1.8% in 2020 – from +2.6% in 2018. In 2019, the SMI boost barely compensates for: (i) the slowdown in foreign demand, in which could reduce export growth from +2.3% in 2018 to +1.0% in 2019), subtracting -0.4pp from Spain’s GDP growth, and (ii) the deceleration of domestic demand (consumption, investment and public expenditures) on the back of slowing employment gains. In 2020, as growth in major trade partners rebounds, Spanish exports would follow (+1.5%), this time with a drag from higher wage bills, marking the end of the Spanish miracle.

Press contact

Lorenz Weimann
Allianz SE