A small ripple of optimism over the gradually improving state of the Spanish economy that filtered through the markets a few weeks ago is now once again shaky on the latest figures from the beleaguered country, which show its public debt burden has soared well beyond governmental forecasts.
The Bank of Spain recently announced that the nation’s public debt had reached 92% of GDP for the end of June, a noticeable increase over the 90% tallied up in March, and numerous parties, the International Monetary Fund (IMF) included, believe that Spain’s public debt-to-GDP is likely to rise even further, most likely topping out well above the 100% mark.
That’s bad news for a country where economic recovery is still but a whisper and where a host of problems, not least severe unemployment, continue to make everyday life extremely tough for scores of people. But nevertheless, Spain’s public debt load is still lower than that of other Southern European countries that continue to suffer the pains of the Eurozone crisis, said Brian May, European economist at Capital Economics in London.
“One hundred percent is not a nice number, but given that Italy’s public debt has been over 100% for a number of years now, and Greece, too, is well above that level, Spain’s numbers aren’t too worrying by comparison,” May said.
Being able to manage that debt burden, though, even if it climbs to a higher level will depend on Spain’s resolve and ability to address the deep-rooted structural issues that continue to hold back economic growth.
In all fairness, the country has been tackling some of those deeper economic issues and because of that, there are definitely signs that the Spanish recession is easing, May said.
The European Central Bank’s (ECB) Outright Monetary Transactions (OMT) program has also brought Spanish government bond yields to more manageable levels and the worst of the fiscal squeeze appears to have passed, May said. The labor market downturn has also eased and Spanish exports, he said, are expanding as the country’s business base improves, thereby lending support to both the economy and the banking sector. And finally, encouraging labor market data suggests also that there have been improvements in that area.
Spanish banks have also succeeded in reducing their ECB borrowings. In August, borrowings totaled around E250 billion, a net decrease from the E400 billion borrowed a year ago.