Economic Performance And Analysis

Economic performance and analysis

The case of Spain

Prepared by Li Haozhen(Canaan)

07th Oct 2014 Similarity:2%
Contents page
1.0 Introduction………………………………………………… 3

2.0 Production output performance analysis…………………3
2.1 Data: Real GDP, GDP growth rate, capita…………… 3
2.2 Distribution: Spanish economic performance trends.. 5
2.3 Fiscal policy: Encourage domestic industry and attract foreign investment………………………….......5

3.0 Labor market analysis………………………………………6
3.1 Data: Unemployment rate ……………………………..6
3.2 Distribution: Spanish Cyclical unemployment…….….7
3.3 Fiscal policy: International trade restrictions …....…. .8

4.0 Price Level analysis…………………………………….......8 4.1 Data: Spanish inflation rate…………………………….8 4.2 Distribution: Inflation reason and trend…………….....9 4.3 Fiscal policy: Spanish austerity measures………….10

5.0 Conclusion………………………………………………….11
6.0 Reference…………………………………………………..13

1.0 Introduction
This essay constructs an index of economic performance for Spanish since 2004 to 2013, applying with macroeconomic analyze, aims to discuss the Spanish performance of economic over 10 years. The economic performance will be provide according three mainly factors: Production output performance, labor market analysis and price level analysis. For each part of analysis, the structure of the evidence including the description of following details: First of all, for analyzing the data, graph will be shown in the repot, secondly, the analyze will followed by the distribution and explain for each performance, lastly, the analysis will end by the government fiscal policy. After analyzing these three part of economic performance, the conclusion of this report will be provide at the end of the essay.

2.0 Production output performance analysis
2.1 Data: Real GDP, GDP growth rate, capita The graphs showing on next page are real GDP (Constant price/ current price), GDP growth rate and GDP per capita in Spain, the collection of data start from 2004 to 2013.

2.2 Distribution: Spanish economic performance trends
According to the figures, it’s easy to see the current economic performance in Spain. First of all, because of the global financial crisis, the GDP in Spain start reduce since 2008, and only have a little fluctuations during the following years, which means the market value of Spanish goods and services stop increase for 5 years, and the size of economy production activities keep the same. Secondly, the Spanish GDP growth rate has 2 times of recession, the first recession start from the global financial crisis which was 2008. Although Spanish GDP growth rate start increase from 2009, but because of the business cycle, the second recession appeared from 2011. In another words, the economic of Spain is during the time of “double dip recession”. That is, the economy is declining for 2 times at lowest point of -1.6%. But before 2008, the GDP growth rates in Spain always keep a healthy performance. Lastly, the Spain GDP per capita keep reduce since 2008, although GDP growth rate start increase since 2009, but the capita still keep reducing, and reached the lowest point at 2014. That is, the capita indicate the average standard of living in Spain is lower and lower.
2.3 Fiscal policy: Encourage domestic industry and attract foreign investment
GDP as a measure of the value of the production equals of the sum up of households’ consumption (C), firms’ investment (I), Government spending (G), Net exports (X). (Kaplan Economics Study guide, p.131) To achieve the aim of increase GDP in Spain, the Spanish government focuses of increase net export and firms’ investment. According to the research, automotive manufacturing is an important export industry in Spain. (Economic and development in Spain, 2013) For increase net export, Spanish government should not only encourage the development of domestic industry, and also need to control the imports from other country for Spain. There fore, on the one hand, Spanish government spending more money in improving automotive industry, such as buy mergers, professional training, pay subsidies reform. On the other hand, Spanish government increases the tariff to reduce the imports from any other countries and to protect the domestic industry. For increase the firms’ investment, Spanish government especially reward the foreign investment actively. Such as provide the information to the foreign companies, promote the cooperation during industries, and pay subsidies for the firms. (Economic and development in Spain, 2013)

3.0 Labor market analysis 3.1 Data: Unemployment rate The graph showing below is the unemployment rate in Spain since 2004 to 2013.

3.2 Distribution: Spanish Cyclical unemployment
Because of the global financial crisis, economic problem due to the type of unemployment in Spain is cyclical unemployment. And from then on, the unemployment rate in Spain keeps increase until now. The type of unemployment gradually changes to the structural unemployment. According to the fiscal policy that government uses to improve domestic industry, to achieve produce efficiently and effectively, skill less staffs lost their job because of the new machine and new technology. That’s the reason why, although the GDP growth rate shows increase since 2009, but there is no change in unemployment rate. While the unemployment still keeps increase, but it’s easy to see that, since 2012, the unemployment rate becoming flattened and start decrease.
3.3 Fiscal policy: International trade restrictions Economic problem influence unemployment rate, unemployment rate also can leads to economic problem, at the time people start reduce spending money, households have no income to pay the salary, as the result, this will due to decrease of GDP growth rate, and more people will lose their job. To solve the unemployment problem, government can stimulate consumption by reduce the tax. But Spain is a special country, at the time they face to the high unemployment rate, they also need to solve the inflation problem, therefore, Spanish should not reduce the tax. What the government did is to protect the domestic industry by international trade restriction. Let domestic industry provide jobs for people. The import rates reduce 10 million EUR from 2008 to 2009. (Bank of Spain, 2014) Further more, the government reduces the career compensation to approach people to find a job. Spanish cuts down the benefits of unemployment by 11.9% from 2008 till now. (European Union, 2014)

4.0 Price Level analysis 4.1 Data: Spanish inflation rate The graph showing on next page is the inflation rate of Spain since 2004 to 2013.

4.2 Distribution: Inflation reason and trend

The inflation rate in Spain was recorded at 0.1 percent in January of 2014. Inflation rate graph in Spain shows that from 2004 to 2008, Spanish inflation rate averaged 2.5 percent. After that, inflation rate reaching a highest point 5.1 percent at the end of 2008. And recorded lowest point is -1.7 percent during 2009. As the CPI charts showing on the previous page, the index including 32 percent of most important categories which is housing. The inflation rate in Spain dropped from highest point to the lowest point during 1 year time, and start increase since 2009. But according to the analysis done before, Spain face to the high unemployment rate, the inflation rate increase didn’t means the standard of living is increase, negatively, the inflation rate is higher than the average wage rate; the outcome is a fall in average standard of living. People can not afford their life, social problem will appear. To solve the inflation problem, several policies was be provided.
4.3 Fiscal policy: Spanish austerity measures
The Spanish Prime Minister Manano Rojoy claimed that, during 2011, Spanish budget deficit up to about 8%, it’s 6% higher than the previous years. (Economic in Spain, 2013) That inflation problem made the Spanish government have to make some measures to solve these. What did government do is provide the Austerity measure to decrease the aggregate demand. The specific approach is improving the tax system, raising the personal income tax, and reducing the spending on subsidies and government expenditure. Reducing social welfare benefits in order to increase revenue and reduce deficit. In addition, the government tries to increase deposits and inhibit demand for credit by raising the deposit and loan interest rates. According to the research, government cuts 1.614 billion EUR on development department budget, welfare benefits and subsidies reduced 20% than before， pension insurance might be cancel in the future. Besides, by raising the personal tax, government revenue will be increased by 6.2 billion EUR on next year. (Economic in Spain, 2013)

5.0 Conclusion This report constructs the index of real GDP, the GDP growth rate, capita, unemployment rate and inflation rate in Spanish over 10 years, and provide the economic analysis to explain the economic performance. In sum, Spain’s economic situation is not optimistic: For production output performance, the real GDP didn’t change for 5 years, which means market value and size of economy of production activities has no change; the GDP growth rate has 2 time recessions, which means the economy have two times declining; GDP per capita is during the lowest price, which means the Spanish standard of living is in the trough. For labor market, Spain has the high unemployment rate; the type of unemployment is cyclical unemployment. Government supply more jobs by protects domestic industry. For price level, the inflation rate is higher than the average wage rate, government try to reduce inflation rate by provide austerity measures, which is decrease aggregate demand. Consequently, to achieve the economic performance, full employment and stable price, Spanish government still need a long-term design.

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Reference list
European Union (2014) Spanish - European Union [webpage]. Retrieved Oct 2, 2014 from http://europa.eu/about-eu/countries/member-countries/spain/indexen.htm

Figures 1-5 (2014) Spain- the economist [webpage]. Retrieved Oct 2, 2014 from http://www.tradingeconomics.com/spain/inflation-cpi

Figures 6 (2013) Spain- CPI [webpage]. Retrieved Oct 2, 2014 from https://www.destatis.edu/EN/FactsFigures/NationalEconomyEnvironment/Prices/ConsumerPriceIndices/BasketGoodsServicesWeightingPattern/BasketGoodsServicesWeightingPattern.html

Golado, Juan J, etc. (2013) Economic in Spain [webpage]. Retrieved Oct 2, 2014 from http://www.sciencedirect.edu/science/article/pii/S0378775306001030

How to measure GDP (2014).Kaplan Higher Education Economics Study Guide. Singapore: Kaplan Press

Ministry of the Interior (2013) Economic and development in Spain [webpage]. Retrieved Oct 2, 2014 from http://www.interior.gob.es/