Economic Studies
Spain

Spain

Population 46.4 million
GDP per capita 26,565 US$
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) 3.4 3.3 3.1 2.2
Inflation (yearly average, %) -0.6 -0.3 2.0 1.3
Budget balance (% GDP) * -5.3 -4.5 -3.1 -2.6
Current account balance (% GDP) 1.1 1.9 1.7 1.6
Public debt (% GDP) 99.4 99.0 98.4 96.6

(f): forecast 

 

SECTOR RISK ASSESSMENTS

EspagneEN

STRENGTHS

  • Reform measures (labour market, banking sector, insolvency, etc.)
  • Improved competitiveness and strengthened export sectors
  • Improvement in the financial position of companies
  • High-quality infrastructures
  • Significant tourism potential

WEAKNESSES

  • High levels of private and public debt, very negative net external position
  • Duality of labour market, high level of structural unemployment
  • Large number of relatively unproductive small companies
  • Fragmented political landscape, unity of the country threatened by separatist movement in Catalonia

RISK ASSESSMENT

Gradual slowing in activity

Spain was again one of the most dynamic of the Eurozone countries in 2017 despite the threat of secession by Catalonia. Growth was driven both by internal and external demand. Household consumption, which grew at a slower rate than in 2016, remained strong thanks to the continued vitality of the jobs market. There is however likely to be a gradual slowing in the level of activity in 2018. The post-crisis recovery is gradually running out of steam. Consumption will increase less quickly, despite the low level of inflation, as the impact of the catching up by households with previously delayed consumer durable purchases begins to wane. Investments however are expected to continue growing and most notably among exporting companies but these could suffer as a result of increasing uncertainties and, specifically, political. The construction sector will remain on its positive track in a context of robust demand and rising prices. Exports will benefit in part from the vigour within the Eurozone economies but given the expected strengthening of the euro against the dollar, this will have an impact on the competitiveness of exports outside the EU as will the negative consequences arising with the slowdown in the United Kingdom.

Despite the relaxed financing conditions, the growth in credit will remain sluggish in a context of ongoing debt reduction within households and companies. The weak state of the credit market in a context of low interest rates will nevertheless continue to undermine the profitability of the banking sector even though its creditworthiness and the quality of its portfolios have improved. Following the adsorption of Banco Popular Espaňol S.A. by Banco Santander for one symbolic euro when it failed the July 2016 stress tests, Spanish banks need to get ready in 2018 for a fresh round of banking stress tests based on a more stringent methodology (IRFS9).

Exiting from the excessive deficit procedure predicted in 2018

The public deficit will continue its slow contraction since 2016. The improvement in the public accounts can be attributed to an increase in revenues and a slight reduction in public spending (lowered social contribution, limited investments and lower interest costs). Unless there is a political consensus following the Catalan crisis making it possible to approve the 2018 budget, the 2017 budget agreed in May 2017 with the support of the Basque minority party, should be duplicated in 2018. There will be a slowdown in budget revenues but spending will continue to be held in check. The reduction in social transfers and the freeze on government employee wages in 2018 will allow for a small increase in public investments. The favourable debt ratio will help contribute to a reduction in the debt servicing burden. If the budget is applied as planned, the public deficit should fall below the 3% threshold in 2018 and allow Spain to terminate the excessive deficit procedure initiated in 2009.

Exporting companies have enhanced their competitiveness since the 2009 crisis thanks to reductions in their labour costs and the restoration of their profitability that has enabled them to win increased market shares. The solid rate of growth in the Eurozone is also expected to help sustain activity but the slowdown in the United Kingdom, Spain’s fourth largest trading partner, could present a threat to those sectors exposed to UK demand, such as the automotive sector (11% of the sector’s exports) and the production of capital goods. The low level of debt interest payments and the cost of energy should also help to maintain the current account surplus.

Risk of Catalan secession because of fragmented parliament

After two consecutive parliamentary elections, the Spanish political landscape was seriously fragmented. The Spanish government formed at the end of October 2016 and led by the conservative Mariano Rajoy has a fragile base. Mariano Rajoy was only able to win a confidence vote in parliament and to bring an end to Spain’s longest governmental crisis thanks to abstentions by a number of socialist Deputies. The commencing of the Catalan crisis with the calling of what was deemed by the Madrid government of an illegal referendum by the Catalan separatists on 1st October 2017, could lead to a realignment of the polarisation of the political chessboard, with the nationalist parties adopting a united front. Following the “yes” vote and faced with the determination of the Catalan authorities under the leadership of Carles Puigdemont to declare independence, the region was placed under central government rule. The enacting of this exceptional provision in the Spanish constitution was followed by the calling of early regional elections, in which the central protagonists for independence, and despite being the subject of legal action, stood and obtained the majority again. This victory is likely to prolong the Catalan crisis, which in view of the results of the PP could occur at the national level. The agreement between the PP, PSOE and Ciudadanos on the Catalan question is not going to eradicate the dissensions within the Cortes (the Spanish parliament). With the government struggling to obtain a majority to approve the 2017 budget, it seems that the inflexibility of its position concerning the Catalan question will in future cost it the votes of Deputies in the small regional nationalist parties. Mariano Rajoy is no longer safe from a censure motion. 

 

Last update : January 2018

Payment

 

The Spanish law of late payments in commercial transactions (Ley contra la morosidad en operaciones comerciales) states a general payment terms, which are generally unfulfilled by the companies as well as by the government.   The usual terms of payment in commercial transactions exceed the legal terms, being globally accepted by market players. 

About the payment means, the bill of exchange is used for commercial transactions in Spain. In the event of default, it offers creditors certain safeguards, including access to the “exchange procedure” (juicio cambiario) introduced by the civil procedure rules under which, based on his appraisal of the documents submitted, a first instance judge (juzgado de primera instancia)will check the “exchange title” has correctly been set up and then will order the payment from the debtor of the principal amount, the late interests and costs, within 10 days and will order a seizure for security (embargo preventivo) on the debtor’s assets up to the outstanding amount. The debtor has 10 days to dispute the ruling.

 

Without payment or opposition in the prescribed time, the judge will order enforcement measures and if necessary, the judicial representative will carry out attachment.

 

Where a claim is contested, a court hearing is held to examine both parties’ arguments and a judgement handed down within 10 additional days of said hearing. This is the legal times but really there are delays due to the Court doesn´t carry out this deadline.

 

Widely accepted though somewhat difficult to obtain, bill of exchange guaranteed by a bank limits the risk of payment default by offering creditor additional recourse to the endorser of the bill of exchange.

 

The cheque offers similar legal safeguards under the “exchange procedure” (juicio cambiario), in the event of default. The same is true of the promissory note (pagaré), which, like bill of exchange and cheque, is an instrument enforceable by law and, being unpaid, is also recorded in the RAI (Registro de Aceptationes Impagadas).

 

An outgrowth of the Centre for Interbank Cooperation, the RAI is the most important registry at the national level, where the payment defaults, above 300 €, of commercial companies, are recorded and where banks and other deposit institutions can check a company’s payment record before extending credit.

 

Electronic transfers via the SWIFT network, widely used by Spanish banks, are a quick, fairly reliable, and cheap instrument, provided the purchaser, in good faith, orders payment. If the buyer fails to order a transfer, the legal remedy consists in instituting ordinary proceedings, or summary proceedings based simply on an unpaid invoice (according Spanish law in order to start this proceedings It should submit original documents: invoices, delivery notes, CMRs, contracts…)

 

Debt collection

 

Special clauses included in the commercial contract, the applicable rate since 31st December 2004, is the interest rate applied by the European Central Bank in its most recent refinancing operation performed prior to the first calendar day of the half year concerned, fixed 8,05 percentage points.

Semi-annually, the Finance Minister publishes the rate thus determined in theBoletín Oficial del Estado.

 

Where there is a lack of settlement agreement with the customer, the creditor will initiate a legal collection process by reference to the law on civil procedure (ley de Enjuiciamento civil) which came into force on 8 January 2001  amendment by:

 

- The Act 13/2009 on 3 November 2009 on the reform of the judicial procedure (ley de reforma de la legislación procesal), in force on 4 May 2010.

This Act granted a higher competency to the judicial representatives (secretarios judiciales) and increased the threshold of monitory and verbal proceedings.

 

- The Act. 37/2011 on 10 October 2011 (ley de medidas de agilización procesal) effective as of 31st October 2011

 

The rules cut the time taken up by litigation significantly and gave oral arguments priority over written submissions – the cornerstone of the previous system – even though the authentication of large numbers of documents remains a requirement.

 

Besides the “exchange procedure”, a seller unable to settle with a buyer out of court may enforce his right to payment through the civil procedure (juicio declarativo), divided into ordinary proceedings (juicio ordinario)for claims over 6,000 € and oral proceedings (juicio verbal),simplified system,for smaller claims.

 

The aim of this legislation  was to speed up delivery of enforcement orders by reducing and simplifying the stages of the old procedure.

 

The claimant has to explain the facts on which he exercises its right and to support all case documents, in original or certified copies by public Notary, when he files its initial petition.

Prior to the investigation of the case, the judge will summon the parties, during a previous hearing (audiencia previa) just in ordinary proceeding, to attempt at conciliation. In default, the lawsuit will be pursued.

 

In addition, for monetary, liquid and overdue claims whatever is the outstanding amount, since 31st October 2011 (previously up to 250,000 €), the creditor now benefits from a more flexible special process, the monitory or injunctive procedure, named “juicio monitorio”.

 

This summary procedure does not require the presence of a barrister or solicitor to file a “petición inicial” prepared with a pre-printed form and submitted to the judge of first instance (juzgado de primera instancia) where the debtor is located, and who may, after reviewing the supporting documents, order the debtor to pay within 20 days.

 

Without debtor’s answer, the judicial representative will inform the judge in order to confirm the decision which decides in favour of the initial request. The judicial representative will hand down a ruling stating the monitory proceedings closed and passes it on the creditor in order to allow contact the Enforcement Office.

 

If the debtor disputes the ruling with motivated arguments into a written statement signed by a barrister and a solicitor, the procedure has to be change to ordinary or oral procedure, depending on  the outstanding amount.

 

Established in April 2003, the judicial tax relating to commercial companies, applies, since April 2011, to any sort of civil procedure and contains a fix rate depending on the sort of procedure filed (rate from 100 € to 1,200 €), as well as a variable rate depending on the amount involved (from 1 € to 1 million € a 0, 5 % of the amount and above 1 million € a 0, 25 % of the amount) with a maximum of 10,000 €. Since February 2015 individuals must not pay this tax. 

Insolvency trend Spain
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