The Spanish economy saw significant improvement during 2016 assisted by low interest rates and fiscal stimulus giving domestic demand a boost. Unemployment is still high at 19 percent but is gradually easing as the economy improves.
A slow and steady recovery is underway in the major cities of Madrid and Barcelona, with investments in residential and commercial real estate, but local construction is still not back to the levels experienced in the days before the global financial crisis.
A considerable residential real estate oversupply remains in some regions, and it will require further increases in demand until work levels recover. The construction sector saw a shakeout in recent years with players leaving the sector and large mergers, but that is now stabilising as demand improves.
High-speed rail remains the priority for infrastructure with Spain’s network now the second largest worldwide and growing, but budgets for further improvements remain tight.
Key to Spain’s economic recovery is getting domestic demand levels back up. Government policy is tending towards fiscal contraction in order to lessen the budget deficit and the risk of high external borrowing cost as interest rates rise again.