Why a little economic growth won't see an end to the pain in Spain

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Just streets away from Madrid's only three-Michelin-starred restaurant, peeling buildings in the city's Tetuán neighbourhood have been plastered with posters featuring the faces of five women.

Placed at eye level, each a few yards apart, the women's portraits are accompanied by descriptions of their situation. "I'm one of the 23,000 people in Tetuán who has to decide between eating or paying the bills," reads one poster. "My daughters and grandchildren barely get by on my €600-a-month pension," reads another.

The Invisibles of Tetuán campaign was dreamed up by local activists after city officials disagreed with them over the need for a community food bank.

In a neighbourhood characterised by gleaming skyscrapers, in which conversation is now dominated by talk of Spain's recovery, few imagine that there are local families still at risk of eviction, says organiser Carmen Clemente. As the portrait of a middle-aged woman named Martha reminds passersby, there are 5,000 such families. "We wanted to show what was actually happening on the ground. The unemployed are still unemployed. Families are still worried about having their water turned off."

When the group launched its campaign, in May, news of it was buried among the headlines trumpeting good economic news for Spain. The country's GDP had grown at 0.4% in the first quarter of 2014, the highest rate in six years, according to the National Statistics Institute. In the second quarter it accelerated to 0.6%, making Spain one of the strongest performers in the eurozone.

It was a relief for the many who have been watching the eurozone's fourth-largest economy closely. Spain had created more than 190,000 jobs over the previous 12 months, its first annual increase in employment in six years, and the biggest drop in jobless numbers since 2006. The sky-high unemployment rate was beginning to ease, from 26% to 24.5%. Prime Minister Mariano Rajoy could barely contain his excitement. "I have been waiting a long time – since I took office, to be precise – to give you news like this," he said. "The labour market has made a 180-degree turn."

The Spanish government accordingly raised its forecast for this year's economic growth from 0.7% to 1.2%. For 2015, it was forecasting 1.8%. It was backed by the International Monetary Fund, which noted in its annual report on the Spanish economy that "Spain has turned the corner". For those worried that the relief might be shortlived, the report added: "We expect the recovery to continue over the medium term."

But just as Spain was becoming more confident in its recovery, official data from Italy on Tuesday showed that the Italian economy had contracted in the second quarter of 2014, putting it officially back in recession for a third time. As analysts noted, the news undermined the note of optimism in Spain's recovery.

The Spanish economy is being buoyed by increased exports, rising domestic demand and a record year for tourism, says Professor Robert Tornabell of Barcelona's Esade business school.

He warns against reading too much into the data. While large companies are reaping the benefits of this growth, he points out, it hasn't been sufficient to provide jobs for the country's more than 5.6 million unemployed.

The real recovery, he says, will be when the economy begins to create jobs for young people and the 3.5 million Spaniards who have been out of work for more than a year. Until then, economic growth will be no more than empty words, particularly for the more than 740,000 families in which every working-age member is unemployed.

The difficulty, he says, lies in working out how much growth would be needed to chip away at this appalling employment rate. Generally the required growth rate is thought to be around 2%. The government's 2012 labour reform, which made it easier for firms to hire and fire, was aimed at facilitating job creation at even lower rates. But even the IMF expects unemployment to remain above 20% for another four years.

How growth might begin creating high-quality, stable jobs is another tough question, Tornabell says. "The government hasn't figured out how to tackle youth unemployment." Nearly a quarter of workers are still on temporary contracts – "junk jobs", as he calls them. "It's not healthy. It's not a solution."

Economist Gayle Allard of Madrid's IE business school has little doubt that the Spanish economy has turned a corner. But the lack of deep structural change has left her feeling "optimism mixed with long-term pessimism".

On the one hand, she says, the country has seen strong job creation leading to "a virtuous circle. More employment, more consumption, more GDP growth – and that means again more employment."

Spain, she says, will probably do well. "It has gained back a lot of competitiveness, wages have really moderated and it suddenly looks very attractive again for foreign investors." But its economy continues to be vulnerable, because the recovery relies on traditional industries for growth, she says: "It's a typical Spanish recovery: a tourism-based, low-productivity economy that's now picking up. It's the same Spain."

As the crisis took hold and the People's party came into power promising austerity and reform, she had hoped for structural changes, making Spain "more of a knowledge economy, more of a tech economy, a higher-productivity economy". But that hasn't happened, she says. "Why didn't they streamline the administration, streamline business procedures, or make the country less bureaucratically complex? For me it was an historic opportunity that they completely threw away."

Half the battle had already been waged, she points out, with previous Spanish governments investing heavily in higher education. "But if you don't have an economy that generates jobs for these educated kids, they have little choice but to leave the country."

Spain has turned into a net exporter of people, with just under 550,000 people leaving last year. Some 79,000 of these were Spanish nationals; the rest were departing foreign migrants, according to the National Statistics Institute.

The exodus suggests many doubt Spain's ability to fully recover. Another telling sign is the growing support for anti-austerity party Podemos (We Can), even as the economy reawakens. Barely 100 days old at the time of the May European elections, the upstart party captured five seats and 8% of the vote.

Podemos's popularity continues to rise. Last Tuesday, a state-sponsored poll by the Centre for Sociological Research said the party was now the third most popular political force in the country, and forecast that it could gain 15.8% of votes in a parliamentary election. Rajoy's People's party would win 30% while the Socialists would win 21.2%.

After hearing constantly about economic growth but failing to see it in daily life, Jesús Rodríguez of Cádiz became a Podemos supporter. As a schoolteacher in a region with one of the country's highest unemployment rates, he constantly meets young people who feel forced to leave in the hope of finding work in other parts of Spain or abroad: "I've watched as my city is slowly being emptied of people between 25 and 35."

The experience has left him looking for something more tangible than economic forecasts, he says. "We urgently need an alternative to the social situation we're in."

Powered by Guardian.co.ukThis article was written by Ashifa Kassam in Madrid, for The Observer on Sunday 10th August 2014 00.04 Europe/London

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