Spain: extraordinary growth
Spain is one of only four eurozone countries, including Finland, Ireland and the Netherlands, with a public sector surplus. Spain's is the second biggest after Finland. Announcing the figures, Pedro Solbes, finance minister, said: ''The rise is a faithful reflection of the excellent state of the Spanish economy and the labour market and the positive results of the fight against fraud.''
Economic growth last year reached a six-year high of 3,9%, compared with average growth in the eurozone of 2,7%. The government is hoping that rising euro interest rates will help cool Spain's overheated property sector without precipitating a crash. As a result, the government forecasts growth will ease to 3,4% in 2007.
Inflation rose to an annualised rate of 2,5% in February, compared with a eurozone average of 1,8% in January. Economists expect Spanish inflation will rise towards 3% by the end of 2007. Spain has been obliged to run a restrictive fiscal policy because monetary conditions, set by the European Central Bank, are deemed to be too lax for Spain's high-growth, high-inflation economy. Euro interest rates have always been lower than the rate of inflation in Spain. Mr Solbes has used the budget surplus of almost €18bn ($24bn) in 2006 to retire public debt and build a reserve fund to pay future pensions. He aims to bring down public debt to below 30% of GDP in 2007, compared with 39,8% of GDP in 2006.
Two-thirds of Spain's budget surplus comes from social security funds that have been buoyed by the contributions of immigrants and new entrants in to the job market. Last year, Spain created almost 700.000 new jobs, about half of all the jobs created in the European Union. Unemployment has fallen to a historic low of 8%. ''No other country in the world has created so much employment,'' Miguel Angel Fernández Ordóñez, the Spanish central bank governor, said in a recent speech.
Nevertheless, economists worry that most of the new jobs are in the low-wage, low-productivity parts of the economy such as construction and domestic services. This, in turn, is exacerbating Spain's loss of competitiveness – a hotly debated topic.
In his speech, Mr Fernández Ordóñez referred to ''imbalances'' in the Spanish economy that had to be corrected. ''On the one hand there is the strong growth of household debt linked to intense house purchases in a property boom, and which is the other side of the coin of the high external deficit, which, at close to 8% of GDP, is the highest among the large economies.''
