The Gain in Spain

By A. Michael Spence

Spain appears to be in the early stages of restoring a balanced and sustainable growth pattern. One hopes that others will soon follow its example.

The Spanish economy is beginning to attract investors’ attention – and not only because asset prices are depressed in the current climate (arguably implying a good buy for longer-term, value investors). While there are huge problems that must still be overcome, there is also a clear sense on the ground that the economy has passed a turning point, roughly at the start of this year.

To skeptics, green shoots of recovery will not bloom without access to the credit spigot, which is still clogged by balance-sheet damage in many banks. But, though the road back to full employment and sustainable growth will not be built overnight, progress on it may be faster than most observers expect.

It is easy to get lost in the details of recovery patterns, so a sound framework for assessing potential growth helps. In fact, the Spanish economy is a classic case of a defective growth pattern followed by a predictable, policy-assisted recovery that is driven (with a delay) mostly by the tradable sector.

Read the full article as published in Project Syndicate.

A. Michael Spence is the William R. Berkley Professor in Economics & Business.