BBVA Research maintains its growth forecast for Spain at 3.2% in 2015 and 2.7% in 2016, according to the latest report Spain Economic Outlook presented this Tuesday by Jorge Sicilia, the chief economist of the BBVA Group, and Rafael Doménech, BBVA Research's chief economist for Developed Economies.
BBVA's research service points out that the “economy's performance has confirmed the expectations we had three months ago and, in the absence of relevant changes in the international situation or in the policies to be implemented, the growth forecast is maintained”. In this regard, BBVA's research service expects the recovery to continue and that the Spanish economy will keep registering growth rates of between 2% and 3% in annualized terms over the coming quarters.
The report Spain Economic Outlook explains that production continues to increase at a high rate and exceeds 3% in annualized terms. In line with expectations, this represents a slowdown in activity with respect to the quarterly rates observed during the first half of the year, when the economy grew at nearly 4% in annualized terms. The reasons behind this lower growth are varied and include the slowdown in global demand, the end of some cyclical factors and greater uncertainty, linked in part to the Spanish election cycle.
However, the report Spain Economic Outlook points out that the economy will continue to register growth rates of between 2% and 3% in annualized terms over the coming quarters, thanks to the existence of a sufficiently favorable global environment that should support the continuation of the expansive process. Thus, even though global growth will remain below its historical average in 2015 and 2016, it is expected to pick up moderately in the coming quarters.
Moreover, BBVA Research attaches special importance to the better relative performance expected in developed economies, in particular in Europe. Oil prices remain at relatively low levels, which should help maintain the competitiveness of Spanish companies and household disposable income.
In addition, the change in tone in demand policies is consolidating, in particular the monetary policy, and the European Central Bank (ECB) could announce in December additional measures to guarantee a more intense recovery of credit and domestic demand, as well as convergence with the inflation target. This is reflected in the fact that the Spanish economy continues to register high growth rates and it is estimated that in the fourth quarter of 2015 GDP could grow by 0.7% over the previous quarter.
Although there are still many remaining challenges and unbalances, the report Spain Economic Outlook highlights that the Spanish economy is now in a relatively virtuous circle, with growth, low inflation and deleveraging compared with the rest of the world. It also points out that “continuing with the reduction of public deficit and debt, as well as permanently reducing unemployment and maintaining the competitive edge achieved in the generation of investment through the implementation of ambitious reforms, are the most important challenges that the new government will have to face”.
One million jobs until 2016
BBVA Research estimates that the economy's growth rate could result in net creation of around one million jobs at the end of the 2015-2016 two-year period, with an unemployment rate of nearly 20% at the end of 2016.
Moreover, consumption indicators suggest that household spending increased in the third quarter of 2015 and, although job creation slowed down between July and September, household disposable income has grown once again, thanks to the reform of the personal income tax regulations.
In addition to the improvement of its fundamentals, private consumption has also been benefited by the increase in new credit transactions, while household perception of the economic situation continues to be favorable. BBVA Research's forecasts show that household spending has increased by around 0.8% in 3Q15, 0.1 pp less than in 2Q15.
BBVA Research also claims that the third quarter of the year was marked by a somewhat less favorable global situation for Spanish exports. In fact, the available information suggests that following the upturn observed in 2Q15, quarter-on-quarter growth of exports of goods was 1.3% in 3Q15. The performance of total exports of services in the third quarter was modest but, in any case, better than in the previous quarter.
Growth in new credit transactions
As regards credit, the flow of new transactions granted continues to increase, in line with the economic recovery. Thus, from January to September, new transactions increased by 17.2% over the same period last year
Retail transactions continue to show strong growth compared with the previous year and are speeding up in general terms, both in SMEs (to 15.8% in cumulative terms for the year) and residential mortgage lending (36.9%), consumer loans (19.6%) and others (23.4%). Should these trends continue, BBVA Research's forecasts suggest that the flow of new credit will exceed the outflow (write-offs and non-performing loans) at the end of 2015 or beginning of 2016, when the stock will start growing.
Despite the fact that the Spanish economy is growing at a healthy rate, some external and internal risks persist. At domestic level, the likelihood that the deficit of the public administrations will reach 4.5% of GDP at the end of the year, thus exceeding the stability target, is high.
BBVA Research maintains that greater deviations than expected would shift a significant part of the adjustment to 2016 and could undermine the recovery of domestic demand. “Maintaining the credibility on the control of public finance has a direct impact on the confidence of the European institutions and, therefore, on the ability to contain the cost of funding of an economy that is overindebted with the rest of the world”, according to the report.
Lastly, BBVA's research service points out that the uncertainty surrounding the political environment could start having a greater impact on the decisions of companies and families. So far, the deterioration seen in the financial variables has been moderate and only relative to other countries. The commitment to the improvement of institutional quality and the boost of measures aimed at contributing to the proper operation of the labor, goods and services markets would alleviate this uncertainty.