Like in previous years, the year now reaching its end has been an obstacle course. However, Spain has not only made the grade but is set to end the year with a “score” that is considered to be impressive by its European partners (GDP growth forecast at 3.2%). Like all other countries in Europe, the Spanish economy has been exposed and remains exposed to various risks.
The uncertainty surrounding emerging markets and the slowdown in growth in China, the end of the commodities supercycle and the third bailout which stopped Greece from having to leave the euro area, have all impacted the Spanish economy. However, Spain has managed to deal with these factors thanks to the reforms implemented internally and also due to external factors such as falling oil prices (down 70% since June 2014), the ECB’s expansive monetary policy rolled out through its quantitative easing programme (due to remain in force until 2017), and, as a result, has marked higher growth than the rest of Europe.
Unemployment: positive outlook for 2016
The first reflection of this improvement, forecast several quarters ago by BBVA Research, has been seen in unemployment figures. In 2014 and 2015 a great many jobs were created without incurring in a current account deficit for the first time in decades. By the end of the year, more than half a million jobs will have been created, and this, coupled with the forecast growth for 2016, “could put the unemployment rate below 20% at the end of next year”, according to BBVA Research estimates. Since 2013, 60% of the total jobs created in the euro area were in Spain and Germany (2.2 million).
Economic growth, low inflation and private sector deleveraging
The real estate sector has also benefited from this positive trend and expects the year to close with growth of 3.4%. Credit ratings are also improving and the default rate has returned to levels seen in April 2013. Lending is following a similar path, and “double digit increases in new lending flows from 2015 will mean that the stock of new loans will start to rise in 2016”, according to BBVA Research.
Internal demand, specifically, investment in equipment and machinery remains the chief driver of growth and exports are rising by over 5% for the second consecutive year. But it hasn’t all been good news. The slightly expansive fiscal policy suggests that deficit target will not be met in 2015 (4.2%).
In the words of BBVA Research “Spain is immersed in a virtuous circle where growth, low inflation and the deleveraging of the private sector combine in a sort of “divine coincidence”. “To sustainably reduce unemployment this virtuous circle must be maintained and this means continuing with the structural reforms over the next few years”.