Spain Economic Forecast

Spain Economic Outlook

October 23, 2018

A second release of national accounts data confirmed the economy maintained solid momentum in Q2 on the back of buoyant fixed investment, with growth showing resilience amid the broader Eurozone slowdown. Available data for Q3 hints at slightly moderating activity, however. Although retail sales bounced back in August after contracting in July, it is likely they will grow at a weaker pace on average in Q3 than in Q2, pointing to continued slack in consumer spending. Furthermore, the composite PMI averaged lower in Q3 from the previous quarter, indicating a loss of momentum in business activity. In the political arena, the Socialist minority government unveiled its 2019 draft budget on 15 October. Notably, it relaxes the 2019 fiscal deficit target from 1.3% of GDP presented by the previous administration to 1.8% and outlines higher revenues—to be generated by major tax reforms—and social spending. However, given that chances of parliamentary approval are slim, the 2018 budget is likely to be rolled over.

Spain Economic Growth

Growth is expected to moderate next year amid tapering domestic demand. The external tailwinds that helped sustain the recovery in recent years also seem to be morphing into headwinds. The tourism boom has reached its peak and the industry is set to cool, with arrivals expected to be lower already this year, likely dragging on job creation going forward. Moreover, the ECB’s end to its bond-buying program and normalization of interest rates may increase public debt servicing costs. Lastly, higher oil prices could raise the import bill, weakening the country’s external position. FocusEconomics panelists project growth of 2.2% in 2019, down 0.1 percentage points from last month’s estimate, and 1.9% in 2020.

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Spain Facts

Bond Yield1.615.62 %Nov 14
Exchange Rate1.130.65 %Nov 14
Stock Market9,107-0.74 %Nov 14

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