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Suddenly Sizzling Spain Set To Lead Eurozone Growth: Arcano

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This article was written on March 2nd, 2015. Instead of posting it we decided to wait (almost) a year and see how accurate the forecasts would be. No revisions have been made to the original draft.

According to Ignacio de la Torre, partner at global independent advisory services firm Arcano, Spain is the emerging success story among European economies. He notes that as of 2014, Spain was already the leader in job creation and growth among larger European economies, and Spain is likely to grow twice as fast as the rest of the Eurozone in 2015.

Spanish real estate market recovering

The Spanish real estate market has been in a major slump for several years now, but de la Torre points to four positive factors hinting at a nascent recovery for the sector.

First, he argues that “adjustment in the sector has been excessive”, in that the Spanish real estate market is currently around one-third of its historical average in terms of investment in construction, housing prices are off 40% from their highs, and in fact, Spain now offers more affordable housing opportunities that most other developed nations in Europe.

Second, de la Torre highlights that the stock of empty homes is recovering in many key locations throughout Spain, including Madrid.


Third, the availability of financing for both residential and commercial real estate projects in Spain is steadily improving.

Fourth, and related to 1-3 above, several different data sources are beginning to show increasing construction activity, and house prices are also moving up.

De la Torre summarizes the potential benefits of a real estate construction boom to the Spanish economy.  He opines that “prices have reached rock-bottom throughout the country, and they will rise more than expected in Madrid, Catalonia and the Basque Country.” He notes the reason for this is the high demand from foreigners (around 35% of total demand) and Spanish families that have “lightened their balance sheets and thus been able to obtain mortgages.”

Another piece of good news for the Spanish real estate sector is the beginning of construction of new houses in areas with low available stock. de la Torre points out that building 200,000 new houses (ballpark historical average) this year will imply 500,000 new jobs. He also highlights how increased residential construction has significant trickle down economic impact. He notes: “auxiliary industries will reactivate, tax collection will increase (reducing the deficit), and delinquency will fall, thus improving bank solvency, increasing the granting of loans. These factors will accelerate economic growth.”

Credit is easing and financing is improving


Another critical factor in the ongoing resurrection of the Spanish economy is the the fact that credit easing, and financing is gradually becoming more available to both businesses and individuals. de la Torre argues that “the relevant figure for growth is the gross new credit flow.”


In regards to new credit flows, he highlights that banks are already lending to small- and medium-sized enterprises and households. de la Torre also notes that larger firms are saving cash and issuing new bonds at very low rates to meet their capital needs. Non-bank finance is also growing rapidly in Spain, it has doubled over the last two years and is on pace to triple over the next five years.


Finally, he argues that “SMEs will be the big surprise of future financing” and a major growth driver for the Spanish economy in the next few years.


In his report, de la Torre offers a brief overview of what he expects to see in Spain over the next few quarters.

“1. To predict the future it is essential to predict financing; new credit flow is key to estimate GDP growth.

2. Banks are solvent and liquid; they are lending and these loans will grow.

3. Non bank finance is intensively growing.

4. Credit conditions for SMEs will ease in the following quarters.

5. As a consequence, economic activity will accelerate.”

Employment in Spain bouncing back


Finally, de la Torre notes that employment is beginning to pick up steam in Spain. He points out that with a growth rate  of 1.3%, Spain created between 320,000 and 400,000 new jobs in 2014. He argues that the ongoing boom in “the construction industry is key to such recovery.”


He also highlights that the Spanish labor market is supported by the fact that “around 100,000 active people leave Spain” annually.


More people with jobs means more people have extra money to spend, and also augurs well for the Spanish economy. de la Torre highlights how this virtuous cycle can be seen in increasing Spanish consumer confidence and a resulting uptick in spending/consumption.

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