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Macroeconomics analysis Updated: 14 Oct 2019

BBVA Research lowers Spain’s GDP forecast to 1.9 percent in 2019 and 1.6 percent in 2020

In its latest Spain Outlook report, presented today by Jorge Sicilia, the Director of BBVA Research and Chief Economist for the BBVA Group, and Rafael Doménech, the Head of Economic Analysis, BBVA Research lowered the forecast for the national GDP growth to 1.9 percent (from 2.3 percent three months ago) and to 1.6 percent for 2020 (from the previous forecast of 1.9 percent). The decrease is explained by a review of economic data carried out by Spain’s national statistics body, the INE, due to the negative trend in some components of demand and the deteriorating international context. Under this scenario, around 750,000 jobs would be created over the two-year period and the unemployment rate would average 13.3 percent next year.


The Spain Outlook report notes that the national accounting revision and recent economic data reveal that the economy is showing somewhat less momentum than was previously expercted. Thus, GDP will continue to grow at a q-o-q rate between 0.3 and 0.5 percent in the 3Q19 - a rate similar to the first (0.5 percent) and second (0.4 percent) quarters of the year, although substantially lower than the rate observed in 2014 (quarterly average of 0.7 percent).

The negative surprises in the statistical revision show a composition of growth that is less solid. In particular, domestic demand is slowing, explained by weak household consumption and largely derived from the slowdown in the purchase of durable goods, which have posted three consecutive quarters of declines. As this relates to investment, growth has also been less vigorous than foreseen. Positive 1Q19 data on the purchase of capital goods have especially  given way to some reversal in recent months. In addition, investment in non-residential construction has continued to demonstrate weakness since the beginning of the year, partly affected by the surprising evolution of public investment.

Among the positive highlights, statistical changes show that exports have performed fairly well despite volatility in its components. On the one hand, service exports had a promising start to the year, although recent behavior of indicators on the tourism sector are of concern. On the other, the export of goods accelerated in the second quarter, bolstered by growing sales within the EU.

Finally, public consumption and housing investments are the two macroeconomic elements with the least volatility and which have continued to support the recovery.

Jorge Sicilia, the Director of BBVA Research and Chief Economist for the BBVA Group.

Uncertainty remains high both in Spain and abroad

Uncertainty over economic policy is rising once again, largely influenced by the volatile international environment. First of all, it seems that tariff tensions have had a greater and more protracted impact on global trade than expected. Second, over the past three months risks have increased in this regard, given the conflict between the United States and China or as a result of the rising probability of the United Kingdom leaving the EU without an agreement. This has lead to significant adjustments in financial markets. Some more open economies, like Germany, are starting to show the effects of greater uncertainty more clearly, increasing the likelihood of recession in Europe.

The risks are also high in Spain. The increase in the savings rate could be a reflection of greater precaution by households. As for companies, investment is weakening, which could be consistent with an environment of growing wariness. This is taking place while salaries are rising and productivity is falling, which could explain the slowing job creation. This is having a larger impact on groups and sectors where the use of minimum wage salary contracts is more frequent or those where the lack of skilled workers could start to become increasingly evident. Furthermore, some sectors like the automotive industry and the housing sector are in an especially uncertain environment in terms of regulation.

Rafael Doménech, the Head of Economic Analysis of BBVA Research.

Despite all of this, Spain’s economy is better prepared to face an environment with lower growth than it was in the past

Businesses and families have made considerable progress in lowering their levels of debt over the past decade. The financial system has adequate levels of liquidity and capitalization. Both factors mean that the impact of monetary policy could be greater than in periods when these conditions were not present. In addition, imbalances are not perceived in certain sectors or markets, such as real estate and labor. Competitiveness gains remain and the shift toward a more open economy has been consolidated.

In any event, these patterns must be reinforced and the economy protected with a plan for comprehensive reform to help reduce the current job and wage gap with the rest of the EMU more quickly. A significant part of the recovery in recent years can be explained by the measures implemented during the crisis. However, policies designed to improve the capacity for growth have been stalled for several years now.