Spain's economy will expand a faster-than-expected 1.0 percent in 2014, leading to moderate job creation for the first time in six years, Prime Minister Mariano Rajoy said on Tuesday. Rajoy told parliament in his annual state-of-the-nation address that his main priority was to reduce one of Europe's highest jobless rates, and he announced an immediate cut in the first two years of social security contributions for companies' new hires.
While Rajoy, who is half way through a four-year term, has overseen a stabilisation of Spain's economy, he recognised that - with one in four out of work - few Spaniards have reaped the benefits so far. Polls show most voters believe the economic turnaround is due to external factors and if elections were held now, Rajoy's centre-right People's Party (PP) would lose its absolute majority in parliament and might lose power altogether.
"We can't feel satisfied until the jobless rate comes down from the dramatic level that still demands our attention," Rajoy said. "I repeat, we'll see net employment creation. The growth will still be moderate this year ...but it will intensify in 2015." Spain's jobless rate of around 26 percent is not expected to fall significantly this year.
Rajoy promised income tax relief for lower wage earners as well as a pick-up in growth to 1.5 percent next year - three years after he broke a campaign pledge and raised income tax to cut one of Europe's highest public deficits. The European Commission on Tuesday also forecast Spain's economy would grow 1 percent this year and was more optimistic for 2015, projecting an expansion of 1.7 percent. The Spanish government's growth forecast in the 2014 budget had been for 0.7 percent, but surging exports have lifted that outlook.
Two years after teetering on the brink of default, and after six years of economic doldrums, Spain's sovereign borrowing costs have fallen to near-record lows. Its short-term costs dropped on Tuesday at an auction of 3-month and 9-month paper, days after Moody's credit rating agency bumped up its ratings on Spanish debt, citing reforms that have helped make the economy more competitive. Exports have jumped as companies have responded to more flexible rules on hiring and firing, introduced by Rajoy two years ago.
That has helped the economy to recover from the 2008 collapse of a long building and housing bubble that brought Spain's banks to their knees in a crisis that threatened to bring down the euro.
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