Wanted in Spain: More Productive Jobs-and More Jobs, Period

NEW YORK, Sept. 25, 2013 /PRNewswire/ -- The Conference Board today published Global Debt and Growth Series: Spain, part of its project to analyze and compare sovereign debt's impact on the outlook for 15 advanced and developing economies (see list below). Five years since the global crisis started, Spain is still reeling: Unemployment is well above 25 percent, and a once sterling debt-to-GDP ratio has doubled to over 80 percent, due both to emergency spending shortly after the crisis hit and plummeting government revenue in the years since.

"In most countries, sufficiently strong gains in labor productivity alone can drive long-term debt reduction, while employment simply follows working-age population growth," said Brian Schaitkin, author of the report. "But it is impossible to imagine Spain returning to fiscal health without substantial job growth that outstrips working age population growth and brings in additional tax revenue. Even if employment expands steadily at 1.0 percent each year—double the projected working-age population growth—the underlying unemployment rate would still be 15 percent in 2035, so there is plenty of scope for sustained employment growth to help bring down Spain's debt burden."  

Long Roads Back: Two Scenarios for Spain
Built on a simple but powerful debt-reduction framework developed by The Conference Board, today's report models two potential growth paths for Spain between the years 2013 and 2035. The moderate growth scenario assumes annual productivity growth of 1.2 percent and employment growth of 0.6 (matching working-age population growth), leading to average nominal GDP growth of 3.9 percent in the years 2019–2035. A more aggressive growth scenario projects 1.7 percent productivity growth and 1.0 percent employment growth, which pushes 2019–2035 nominal GDP growth to 4.9 percent.

Compounded over decades, such variations profoundly affect government revenue—and accordingly, deficit levels. Under Spain's moderate growth scenario, debt-to-GDP ratio would peak at 154.6 percent in 2027 and remain above 140 percent in the 2030s. Under the aggressive growth scenario the peak is only 118.2 percent and arrives in 2020; by 2034, Spanish debt-load would fall below the Maastricht criterion of 60 percent. But sustaining these optimistic benchmarks will require long-term fiscal discipline and smart structural reforms.

"Unlike Italy or Greece, Spain did not overspend before 2008," said Schaitkin, "and in fact had one of Europe's best government debt-to-GDP ratios. However, the economy's growth during the early- and mid-2000s was built on the shaky foundation of a housing bubble. When it burst, Spain was left with a debt burden that will take decades to undo."     

About the Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

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