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Economic forecasting 11 May 2016

Rafael Domenech: “The Spanish economy will grow 2.7% in 2016 and 2017 in a global environment of fragile growth that is more vulnerable to risks and uncertainties.”

BBVA Research presented the latest edition of its Spain Economic Outlook report today. Economists’ forecasts for upcoming quarters remain unchanged from the forecasts that were published in the last first quarter report.

In this regard, BBVA Research Chief Economist Rafael Domenech indicated that “the Spanish economy will grow 2.7% in 2016 and 2017 in a global environment of fragile growth that is more vulnerable to risks and uncertainties.”

“In fact, data we have from the second quarter indicate that the Spanish economy is growing slightly above 3%. If our economic forecasts are confirmed, over this two year period the Spanish economy will create nearly one million jobs and the unemployment rate will fall to 17.5% by the end of 2017,” Domenech added.

For the Chief Economist of Developed Economies at BBVA Research, this macroeconomic scenario is subject to risks and uncertainties. Some of these risks come from abroad and are related to the outcome of the U.K. referendum over whether or not to remain in the EU. There are also geopolitical risks, related to the slowdown of the Chinese economy and the impact U.S. monetary policy could have on emerging economies. “Domestic risks are mainly related to meeting the budget stability objective and economic policy uncertainties and their potential impact on growth over this two year period,” he noted.

At the end of 2017 the unemployment rate will be around 17.5%

Regarding the labor market, Domenech explained that in any case, if BBVA Research’s economic forecasts are correct, at the end of 2017 the unemployment rate will be around 17.5%, “an unacceptably high unemployment rate.” “If we add to this the high rate of temporary contracts, we have a precarious labor market with rates close to 27%. We can definitely not be satisfied. We need to continue working by adopting new measures and new reforms that increase efficiency and improve equity in the labor market.”

At the end of the day, he continued, the labor market is the reason behind nearly 80% of inequality in Spain. “That’s why the labor market observatory recently published a series of new measures that range from incentivizing permanent contracts and modernizing collective negotiation to making tax structures more efficient to encourage job creation. We also suggest improvements in active and passive employment policies so that when people lose their jobs, the period of time in which they are part of the unemployment rate is as short as possible and they are more likely to find a job,” reported the BBVA Research economist.

For Rafael Domenech, “the goal of all these measures and of the continuous approval needed of each and every one of them, is none other than to lower the unemployment rate to the levels of countries around us, of the most advanced societies, so that the unemployment rate in future economic recessions does not exceed 10%. On the other hand, when we are in a period of economic expansion, the unemployment rate could decline to 4%, or even lower.”

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