Spain Economic Forecast

Spain Economic Outlook

June 26, 2018

Pedro Sánchez, leader of the Socialist Workers’ party (PSOE), was sworn in as prime minister on 2 June following a successful parliamentary vote the previous day on the no-confidence motion he introduced against Mariano Rajoy on 25 May. His new government brings in a period of political uncertainty ahead given his party’s minority position, holding just about a quarter of seats in congress. The economic impact should be limited, however, as Sánchez has committed to applying the recently approved 2018 budget and adhering to EU fiscal rules. The political shake-up came against a positive economic backdrop, with GDP expanding a solid 0.7% quarter-on-quarter in Q1 on the back of stronger gains in private consumption and fixed investment. Available data points to a slowdown in Q2, however, with growth of both industrial production and retail sales decelerating markedly in April and the manufacturing PMI also losing momentum in April–May.

Spain Economic Growth

Strong employment growth and relatively subdued inflation should continue to propel private consumption, underpinning growth this year. However, the economy faces mounting headwinds in the short- to-medium term. The key tourism sector, which has experienced a boom in recent years largely a result of surging geopolitical risks in other tourist destinations in the Mediterranean, is showing signs of cooling. Moreover, given Spain’s high energy import dependence, rising oil prices should exert upward pressure on the import bill, likely dragging on growth going forward. FocusEconomics panelists project growth of 2.7% in 2018, unchanged from last month’s estimate, and 2.3% in 2019.

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Spain Facts

Bond Yield1.325.62 %Jul 12
Exchange Rate1.170.65 %Jul 13
Stock Market9,735-0.74 %Jul 13

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