05 November 2013

Spain: Autumn 2013 economic forecast - Return to positive growth

There are prospects of a moderate recovery, amidst continuing adjustment of imbalances. Domestic demand is slowly stabilising and wages and inflation remain moderate. Fiscal consolidation is set to continue, but at a slower pace.

Following nine quarters of negative growth, the Spanish economy appears to be embarking on a moderate recovery in the second half of 2013, supported by the pick-up in the rest of the EU and policy progress at home. Net exports remain the main growth driver, while domestic demand is exerting less of a drag.

Real GDP is expected to contract by 1.3% in 2013, after -1.6% in 2012. Preliminary data indicate that GDP growth has turned marginally positive in the third quarter of 2013, driven by strong exports and some stabilisation in the labour market.

Real gross disposable income and private consumption growth are expected to turn marginally positive in 2014 and the saving rate is projected to stabilise. Exports have remained resilient. Lower recent demand from outside the EU has been compensated by a redirection towards European destinations. Going forward, imports are expected to strengthen on the back of growing exports and less subdued domestic demand. The trade surplus is projected to widen over the forecast horizon.

The unemployment rate declined to a still very high 26.0% in the third quarter of 2013. The decline was largely driven by a contraction of the labour force and some seasonal factors. Unemployment is projected to fall gradually over the forecast horizon, as the labour force continues to shrink and employment destruction reaches a turning point in the course of 2014.

The general government deficit for 2012 was revised down to 6.8% of GDP (from 7%), net of bank recapitalisations amounting to 3.8% of GDP. Under a no-policy-change assumption, the headline deficit is expected to widen to 6.6% of GDP in 2015. The structural deficit is estimated to be close to -4¼% of GDP in 2013 and 2014 before rising to 5¾% in 2015. Large public deficits and low nominal GDP growth are projected to push the general government gross debt to above 100% of GDP over the forecast horizon.

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