The pace of Spain’s economic recovery continues to quicken, with new central bank estimates suggesting the country grew 1 per cent in the second quarter — the fastest rate of expansion in more than eight years. Encouraged by the latest data, the Bank of Spain lifted its full-year growth forecast to 3.1 per cent, and predicted that the “buoyant upturn” would continue next year. It noted improved financing conditions for business, as well as the “increased confidence” of Spanish households, which are benefiting from higher wages, lower oil prices and a government tax reform. The housing sector, too, was showing signs of “incipient recovery”. The latest show of strength from the Spanish economy offers a welcome boost to the government of Mariano Rajoy, who is hoping to win a second term as prime minister later this year. Polls suggest the ruling Popular party will emerge as the biggest party in parliament once again, but will fall well short of the absolute majority it currently enjoys.

   PP strategists are hoping to win back disgruntled voters by pointing to the country’s accelerating economic recovery — and by shifting the stance away from austerity towards tax cuts and spending hikes The government passed a tax reform last year that included cuts to the top level of income and corporate tax. Speaking last week, Mr Rajoy hinted that the government could loosen its fiscal stance further, as part of a budget proposal due to be tabled before the end of September — just in time for the general elections. “If revenue collection allows it,” he told party leaders,” I don’t rule out doing more things.”

   Aside from further tax cuts, the government is reportedly also considering plans to raise public sector pay — for example by fully reinstating the Christmas bonus paid to the country’s civil servants. Cristóbal Montoro, the budget minister, told parliament this week that it was the government’s intention to “compensate all the citizens for the efforts they made all these years”. That approach, he added, would include Spain’s civil servants.

   Spain’s tentative shift towards fiscal largesse offers a striking contrast with the situation in Athens, where the Greek government is under fierce pressure from creditors to cut spending and raise taxes in order to avoid a default and possible exit from the eurozone. Madrid itself has long taken a hard line against Athens, arguing that the Greek government must embark on the same kind of reforms and measures that eventually helped steer Spain out of recession two years ago.

Euro Reporter