The official figures on the Spanish economy may only be telling part of the story of what is really going on in the embattled Mediterranean country, according to Alistair Newton, senior political analyst at Nomura.
The power of different Spanish regions and the size of the black economy muddy the waters when trying to build up a picture for the country, Newton told CNBC.
“We have no idea of the extent of unpaid bills in the regions, in particular for health care and education”, he said. “Some estimates put these at billions of dollars…how do you get that under control?”
The Spanish government is announcing a budget which is expected to reinforce austerity on Friday, despite Prime Minister Mariano Rajoy missing out on a symbolic mandate to help push through tough measures in regional elections in Andalucia earlier in the week.
Official employment statistics put unemployment at 22 percent, while youth unemployment continues to hover around the 50 percent level – but some believe that there are more people who are working off the books.
“There are probably a million people in Spain who are in the black economy,” Newton said. “That is 5 percentage points of the headline unemployment figure”.
Rajoy’s government has also been charged with making labor market reforms. As Thursday’s strike action in Spain shows, not all of the Spanish population is in favour of the proposed reforms to the labor market or the austerity agenda.
There are also worries in the market about the risks posed by the Spanish banking sector, which has bought more Spanish sovereign bonds with the cheap loans provided by the European Central Bank .
Restructuring in Spain “is avoidable” but needs “more radical fiscal and structural measures”, Citi’s Chief Economist Willem Buiter wrote in a research note this week.