Spain Business Forecast Report Q1 2015

Date: November 15, 2014
Pages: 52
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download
ID: S906437F5ACEN

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Spain Business Forecast Report Q1 2015
Core Views

Spain’s economic recovery will gather steam in 2015 and 2016, with real GDP growth set to outperform the eurozone. However, growth rates will remain subdued by a historical point of view, as the country remains stuck in between an export and domestic demand-driven growth model. Sluggish demand from core eurozone economies and recovering domestic demand will see the current account surplus shrink over 2015 and 2016.

The Spanish government will relax the pace of austerity in the run -up to the parliamentary elections scheduled for 2015. Consumer price growth will struggle to pull out of deflationary territory over the coming months amid weak domestic demand and declining commodity prices. We believe rising momentum behind the Catalan secessionist movement will eventually result in Madrid offering the region more powers. This should prevent Catalonia leaving the country altogether.

Major Forecast Changes

Softening external demand has prompted us to downgrade our real GDP forecasts to 1.6% in both 2015 and 2016, from 1.7% and 1.8% previously.

This trend has also resulted in a downward revision to our current account surplus forecasts for Spain to an estimated 0.4% of GDP in 2014 and 0.7% in 2015, from 1.7% and 1.9% previously.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
More Federalism For Catalonia
Although Catalan independence remains unlikely, growing support for secession will prompt the Spanish government to offer greater federalism to the region at some stage.
  Table: Political Overview
Long-Term Political Outlook
Political Challenges Beyond The Recession
Spain's ongoing economic malaise has put several structural political issues into the spotlight. Challenges over the next decade will include unemployment, demographic changes and constitutional questions.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Hard To See Where Growth Will Come From
Spain's economy will remain stuck between an export and domestic-demand driven growth model in 2015 and 2016. This will restrict real GDP growth and highlights a growing need for the government to address more of the country's structural competiveness issues.
  Table: Economic Activity
Balance Of Payments
Cannot Keep Relying On Exports
Spain's export-driven recovery is threatened by ailing demand from core eurozone ec onomies. Sluggish export growth and recovering domestic demand will see the current account surplus shrink over 2015 and 2016.
  Table: Balance Of Payments
Fiscal Policy
Overly Reliant On Low Yields
The Spanish government will relax the pace of austerity in the run up to the parliamentary elections scheduled for 2015. This poses few risks to debt sustainability as long as bond yields are pinned down by ECB monetary expansion. Rising borrowing costs could eventually force the government into swingeing cuts, derailing the economic recovery.
  Table: Fiscal Policy
Monetary Policy
Deflationary Threat Means ECB Will Do More
Spanish consumer price growth will struggle to pull out of deflation over the coming months amid weak domestic demand and declining commodity prices. However, ECB balance sheet expansion will prevent deflation from persisting over the long term.
  Table: Monetary Policy
Banking Sector
Banks Cannot Rely On Carry Trade Forever
Spanish banks are on a firmer footing following the sector's bailout, with healthy capital accumulation leaving the sector better protected against external shocks. That said, weak demand and tight credit standards will continue to restrict lending, making banks over-reliant on their sovereign bond holdings for profits.
Regional Economic Outlook
ECB Easing: Signs Of Growing Anxiety
The ECB has embarked on additional monetary easing at the September meeting, earlier than we had expected. The ECB's almost knee-jerk reaction to the longstanding deterioration in headline inflation and macro data suggests that the central bank has started to backpedal fast, having previously played down the risks of deflation. We do not view the new measures as a major new expansion of monetary policy, but believe that the ECB's actions and reference to the size of its balance sheet indicate that the tide is starting to turn, and that far more aggressive monetary stimulus could be on the cards.


The Spanish Economy To 2023
Slow, But Steady Growth Ahead
In order to correct for the massive imbalances built up during Spain's decade-long economic boom, the economy is now in the first stages of rebalancing that w ill result in a lower long-run growth potential. Household spending in particular, which was the primary driver of growth since adoption of the euro, is set to temper significantly amid an environment of tighter credit conditions and deleveraging. While an internal devaluation will help restore some of Spain's competitiveness over the long run, the process will prove long and painful. Ultimately, compared with the levels of growth enjoyed since euro adoption, the next 10 years are likely to prove a lost decade for Spain.
  Table: Long-Term Macroeconomic Forecasts


Operational Risk Index
Operational Risk
  Table: Developed States - Labour Market Risk
  Table: Developed States - Logistics Risk
  Table: Developed States - Crime And Security Risks
  Table: Developed States - Trade And Investment Risk


  Table: Construction And Infrastructure Industry Data
  Table: Construction And Infrastructure Industry Data
Oil & Gas
  Table: Oil Production
  Table: Oil Production
  Table: Gas Production
  Table: Gas Production
Other Key Sectors
  Table: Pharma Sector Key Indicators
  Table: Telecoms Sector Key Indicators
  Table: Defence and Security Sector Key Indicators
  Table: Food and Drink Sector Key Indicators
  Table: Autos Sector Key Indicators
  Table: Freight Key Indicators


Global Outlook
Reality Check: Uncertainty Reigns
  Table: Global Assumptions
  Table: Developed States, Real GDP GrowtH, %
  Table: Emerging Markets, Real GDP Growth, %
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