The EconomistJuly 27th 2019 591A
stone’s throwfrom the bustling ar-
cade of Atocha railway station in cen-
tral Madrid are the offices of Spotahome, a
startup that matches tenants and long-
term rentals. Set up five years ago, it lists
65,000 properties in 11 European cities and
employs more than 300 people. An exam-
ple of Spain’s small but fast-growing start-
up scene, its success reflects an economic
resurgence in Madrid and some other
European cities. The supply of rental prop-
erties has grown since Spain’s deep hous-
ing crisis, notes Alejandro Artacho, its
boss. Demand comes from exchange stu-
dents, as well as an expansion that has
lured foreign businesses and workers.
Spain’s population fell after recession
struck for the second time in three years in
2012, as more people moved abroad than
came in, but that trend reversed in 2016.
Since 2018 a slowdown in trade and
manufacturing, concentrated in Germany
and Italy, has cast a pall over the euro area.
But matters would be far worse had other
countries and sectors not held up. Spain
alone accounts for a tenth of the zone’s gdp,
but in recent years has contributed a fifth
of growth and an outsize share of new jobs.
Across the bloc sectors that rely on domes-
tic demand have expanded, as recovering
labour and credit markets have boosted
household and business spending.
In the growth league table, the euro
area’s newer members in central and east-
ern Europe come top (see chart on next
page). But these make up just over 1% of the
zone’s economy. The big four—Germany,
France, Italy and Spain—make up three-
quarters. Although France has grown more
slowly than Spain, surveys of activity there
have been buoyant. Daniela Ordonez of Ox-
ford Economics, a consultancy, points out
that it is the only country where such indi-
cators were both above their historical av-
erage and strengthening in the second
quarter, perhaps as business sentiment re-
covered from the worst of the gilets jaunes
protests in 2018.
France and Spain have certainly felt the
slowdown in global trade. According to a
preliminary Purchasing Managers’ Index
survey released on July 24th, manufactur-ing activity in France stagnated in July. But
their factory sectors have held up better
than Germany’s, which is more dependent
on exports and appears to be in recession.
They have also been helped by what Ray-
mond Torres of Funcas, a think-tank in Ma-
drid, calls a “virtuous loop”, connecting an
improving labour market to rises in con-
sumption and investment.
Across the euro zone 2m jobs have been
created since early 2018. The unemploy-
ment rate has fallen to pre-crisis levels.
Wage growth, though still modest, is pick-
ing up and, courtesy of a dip in the inflation
rate in the past year, real incomes are accel-
erating. Ms Ordonez expects them to grow
by 2.5% in France this year, the fastest pace
since 2007. Banking reforms in Spain mean
credit is flowing more freely. Companies
are investing more in equipment. Invest-
ment in housing has also risen. No wonder
that output in retailing and construction
has risen steadily across the bloc since- Even in Germany domestic demand
has been healthy, thanks to the lowest un-
employment rate in decades—but not
quite healthy enough to make up for the in-
dustrial slowdown.
The fear, however, is that as external
gloom deepens, the positive loop will go
into reverse. The slowdown in manufac-
turing, at first dismissed as temporary by
economists, has persisted: the threat of
American tariffs on European cars and a
disorderly Brexit still loom. Trouble in ex-
porting industries can easily spill over into
The euro area
Good day sunshine
MADRID
Domestic demand has sparkled against the euro-gloom. But it may not last
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