A Changing World: Spain, from political to economic ‘great exception’ in the European Union

Fashion business’ game board has turned around. The legacy of the crisis, instability, the peak of populist movements, the attempts to move backwards in globalization and the threat of the global economic downturn has made almost all the predictions fail one by one. The world undergoes a transformation, and fashion, as a global player, must adapt and transform with it. MDS will go through the keys for the new order in the most important markets in the sector and how this can affect one of the most globalized business in the world.

From being one of the PIGs to weathering the slowdown of global economy. The risk premium covered all debates, from bars to television, until Catalonia snatched all the front pages. In recent years, Spain, the fifth largest economy in the European Union (the fourth after the United Kingdom’s departure) has taken a 180-degree turn.

While Europe is constantly threatened by the shadow of a recession, the country surprises analysts with growth rates that beat those of other EU partners. In its latest forecast update, the International Monetary Fund (IMF) only revised its growth outlook for the Spanish economy by one tenth downwards, compared to the reduction of up to 0.5% for Italy, for example.

The country will maintain growth well above the euro area average, although it will also decelerate, with increases of 2.1% in 2019 and 1.9% in 2020, compared to the increase of 2.5% registered in 2018. This expansion contrasts with the forecasted for the euro area (1.3% and 1.5%, respectively) and other powers such as Germany, with 0.8% and 1.4%.

The IMF forecasts that the Spanish economy will grow by 2.1% in 2019 and by 1.9% in 2020

Organizations such as the OECD or Goldman Sachs share the optimism for the Spanish economy. The US bank, for example, expects a 2.3% rise for this year and believes it is “unlikely” that any government represents a “greater impact” for the economy. However, the entity warns that domestic consumption will not be enough to compensate if it were to aggravate the global economic slowdown.

Unemployment, the great backlash that still remains since the crisis, continues to fall. The country closed 2018 with the largest job creation in twelve years, and unemployment fell to 14.45%, its lowest share since 2008, according to data from the Labour Force Survey, prepared by the National Institute of Statistics (INE). However, in each of its reports the IMF insists on the need to undertake a labor reform to “reduce the duality” between temporary and indefinite employees and reduce precarious employment.

According to the agency, the unemployment rate will hardly fall in the coming years and will not fall below 14% in 2020 and 2021. In addition, the government anticipated a greater rise, up to 12% and 10.7%, respectively.

The other main concern of the IMF is the deficit. According to the institution, the country’s public deficit will exceed the target of 1.3% set by 2019 by 12,000 million, standing at 2.3%, and will begin to grow again in the coming years to end at 2.8% in 2024.

In fact, the IMF particularly pointed out to Spain the need for greater fiscal discipline, despite being a global forecast report. “In some countries (France, Italy, Spain), buffers should be rebuilt gradually to avoid reigniting adverse feedback spirals between sovereign and bank risks and to secure stability,” explained the institution.

Politics above all

From the moment that the economy began to consolidate its recovery in 2015, political conflicts took over again. Massive demonstrations in Catalonia asking for a referendum on independence first led to a consultation and then developed into a proclamation of the republic, which was suspended only a few minutes later.

The so-called procés accelerated in 2017, ending in an illegal vote held on October 1st under the mandate of the former president Carles Puigdemont, who now resides in Belgium to avoid being prosecuted by the Spanish courts. Other members of the government and key civil organizations involved in the process, such as the Catalan National Assembly and Òmnium Cultural, are in pre-trial remand facing rebellion, sedition and misappropriation accusations, among other charges, for organizing the vote.

In this context of political tensions, the first motion of censure that was executed in Spanish democracy took place. It was registered by the Socialist Group after the National High Court sentenced that Partido Popular, the current leading party, had directly benefited from improper payments for contracts of the Gürtel case.

Employment has recovered but the wages are still below those of 2018

After the approval of the motion, Pedro Sánchez, secretary general of the socialist party Psoe, was elected president, the first who has not been a deputy since democracy was restored. With only 84 deputies of the 350 seats of the Congress, Sanchez thus placed himself at the head of the weakest government of Spanish democracy.

The Catalan pro-independence supporters, who had been key to bring him to the presidency, were also the ones who rejected the general budgets. The Government’s refusal not to cross the red line of self-determination broke off the dialogue with the Generalitat, and the PDeCAT and Esquerra Republicana de Catalunya (ERC) parties decided not to support the accounts. Then, after a demonstration in Plaza Colón in Madrid for “the unity of Spain”, Pedro Sánchez called new general elections on April 28, just eight and a half months after reaching the presidency.

Pedro Sánchez led the shortest Government of Spanish democracy: only ten months in office

During the elections, the debate on nationalism once again took the bulk of the political and media discourse, to the detriment of specific economic proposals. A new player in the political map, Vox, capitalized part of the interest with a discourse focused on the unity of Spain and recovering “the traditional values” of the country.

The group made its public appearance only a few months before, during the Andalusian elections, in which Spain ceased to be the great exception in Europe. Vox burst into the Parliament of the most populated community in Spain with twelve seats, only five less that the left-winged coalition Adelante Andalucía.

The old Spanish bipartisan map has been definitely left behind. Psoe and PP go to the elections knowing that the absolute majority is a fantasy and that forming a government is almost mission impossible. The other two parties with greater representation in the chamber, meanwhile, are taking a stand: Citizens have ruled out agreeing with the Socialists, but their alternative is an alliance with the far-right, as it happened in Andalusia; and Unidos Podemos has already denied its support to Sánchez once.

The second most aged country in the world

Spain is one of the most aged countries in Europe. The birth rate is falling and the life expectancy is one of the highest in the world, while the migratory balance, driving engine of the demographic growth during the years previous to the crisis, has lost momentum, although it continues barely saving the population growth.

According to the Continuous Register Statistics of the INE, which collects data as of January 1st, 2009, the population resident in Spain has exceeded, for the first time since 2013, 47 million people. The figure has increased for the third year in a row, with a 0.6% rise, thanks to the migratory balance, of 290,573 people. On the other hand, the Spanish population has been reduced by 6,186 inhabitants.

Among the migrant population, the three first positions are still taken by Moroccan, Romanian and British, while Venezuelan climbed to the seventh position in full humanitarian crisis in the country.

One out of five Spanish inhabitants is older than 65

Almost one out of five Spanish inhabitants, 19.3% is older than 65, and the average age stands at 43.4 years old. Spain will be the most aged of the world in 2050, together with Japan, according to the United Nations (UN) and the Organisation for Economic Cooperation and Development (OECD).

The Spanish population older than 65 years old will represent 26% of the total inhabitants in 2031, compared to the current 19% and the 8.2% it represented in 1960. However, in some autonomous communities, such as Asturias, the share of people older than 65 years old already reaches 25%, while the one for younger than 15 years old stands at 11.7%.

Fashion: home for the giant

Spain is cradle of the largest fashion distributor of the world, Inditex, and the fifth largest consumer market for the sector in Europe. Although it does not belong to the traditional route of the sector, Zara has placed the country in the global fashion map, in which Spain is seen as a complex market, with tough competition and low prices.

Of the 32 European countries, Spain is the sixth cheaper country to purchase clothes and footwear, compared to the fourteenth position it held in 2003. The country is 12% cheaper than the European average, according to data by the European statistics agency Eurostat.

Deflation in the sector, also motivated by the emergence in Spain of low-cost giants such as Primark and the constant price war that distribution companies have maintained since the crisis, have contributed to the sector having progressively lost positions in the budgets of Spanish households.

Each family allocates on average 1,514.8 euros to the purchase of clothing and footwear, according to the latest data from the Household Budget Survey of 2017. The figure represents a rise of 4.4% at current prices, its greater rise of the last decade.

Despite the increase, the spending continues far from the levels reached beforethe crisis. In 2007, the average expenditure per household in clothes and footwear amounted to 2,075.5 euros. However, the following year began a downward trend that did not break until 2014.

The spending on clothing and footwear per person stood at 608.6 euros in 2017, 4.53% more than the previous year. It is the first time since 2010 that it exceeds 600 euros, but, again, it is still below pre-crisis levels, when each Spanish spent more than 750 euros per year on fashion.

Despite losing weight as a consumer market, Spain continues to claim its place in the global map of the sector. In 2017, the country slipped for the first time in the top 10 of the world’s largest apparel exporters, thanks to the boost of the internationalization of groups such as Inditex, Mango, Tendam or Desigual.

Spain appeared for the first time among the largest apparel exporters in 2017

According to the latest data from the World Trade Organization (WTO), the Spanish market sold abroad clothing products worth 14.34 billion dollars in 2017, which represented 11.8% more than the previous year. Only ten years earlier, in 2008, Spain was the twelfth largest garment exporter in the world, behind countries such as Belgium or France. The growth of Spanish clothing exports has since then stood at 103.5%, that is, more than the double.

Currently, Spain exports more garments (in value) than Western economic powers such as France, the United Kingdom or the United States, and emerging economies such as Indonesia, Cambodia or Pakistan.