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Economic analysis Updated: 04 Jan 2016

Economic recovery: 2016, the year of consolidation

Without a doubt, of all the big challenges that lie ahead for Spain in the year that has just begun, the most pressing one is consolidating the economic recovery and improving the job market. Experts agree that stability and continuity of reforms are essential to achieve these objectives.

GDP growth, combined with an increase in private consumption and investment

According to forecasts, the Spanish economy will continue growing in 2016, with GDP growth rates expected to range between 2.5% and 3% (in annualized terms) in coming quarters. But this growth needs to be underpinned by certain accompanying factors.

First, the progressive adjustment of the internal imbalances will allow internal demand to continue showing signs of strength, which will drive both private consumption and investment during 2016.

Global GDP growth: Key for the Spanish economy recovery

The global economic climate will also be key for Spain’s economy recovery. BBVA Research estimates that this growth will be favorable enough to drive global activity up slightly and that, despite remaining under historic average rates, global GDP growth figures should pick up speed moderately during the later quarters of 2016. Developed economies, and Europe in particular, are expected to follow a similar path. In BBVA Research’s baseline scenario, the US will grow about 2.5% and the Eurozone 1.8%.

Expansive monetary policy and oil prices

Another factor to take into account during 2016 will be the ECB's expansive monetary policy. Oil prices will remain at low levels, which should help Spanish companies remain competitive and to increase income availability in Spanish households.

The challenges for the Spanish government

Despite a favorable international context for Spain, persevering in cutting public deficit and debt, reducing unemployment permanently and maintaining the competitive advantage achieved through the implementation of ambitious reforms will be the key challenges that the new Spanish government will face.

Also, the outcome of December’s presidential election has increased the perception of risk in the Spanish economy, as a result of political uncertainty, which had already been on the rise throughout 2015. This uncertainty, since early 2015, has resulted in an increase of almost 50 basis points of the issue cost of 10-year bonds for the Spanish Treasury compared to the Italian bond.

Were it to continue or worsen in coming months, this situation could hurt Spain’s economic recovery prospects, as well as the possibility of delivering on the 3% GDP and employment growth rate forecasts. Also, this scenario of higher political uncertainty could pose additional hurdles for the fiscal consolidation and structural reform processes that the country still needs to undergo.

International factors that could affect the economic recovery

There are several international risks that might affect Spain’s economic progress and which will need to be kept under close watch during the year that begins. The main ones have to do with the possibility of a more intense slowdown in emerging economies, especially China's; the response of global and US economies to successive interest rate hikes by the Fed; the results of the Brexit referendum in the UK; the achievement of the objectives of the adjustment program in Greece; Europe’s migratory crisis, and, finally, international terrorist and geopolitical risks, especially in the Middle East.