EUR 25.44 For Business Accounts Only

Spain 2018: A slower pace of growth

 

2018e GDP growth may slow to 2.5%

Spain’s GDP will increase +2.5% and +2.2% in 2018e and 2019e (vs. +3.1% in 2017e) according to our forecasts. Despite the slowdown, the figures compare positively with the Eurozone’s expected growth rates (+1.8% and +1.6% for 2018e and 2019e).

But the miracle still continues: positive contribution of both domestic and external demand

We estimate domestic and external demand to contribute +2.0pp and +0.5pp to GDP growth in 2018e (+2.5pp and +0.6pp in 2017e). This is a remarkable fact that we also highlighted in our previous reports since historically both demands behaved oppositely and 2018 will be the third consecutive year of positive contribution of both. Exports already represent 34% of GDP in 2017e, the highest percentage ever, while imports represent 31% of GDP.

The negative impact of the headwinds

Three main reasons explain the lower growth rate: (a) the appreciation of the Euro vs. the US dollar affecting exports; (b) the higher oil prices affecting consumption and imports; and (c) the political instability impacting both investors and consumers’ confidence. In addition, the lack of new structural reforms may not encourage further gains in the competitiveness of our economy. Finally, the savings ratio of the households is expected to decline to 7.5% of gross disposable income in 2017e, the lowest figure in this century (except for the 5.9% posted in 2007) and, consequently, private consumption may also suffer from a rebound in savings.

A new financing model for the regions

We expect public deficit to decline to –2.3% in 2018e (from –3.2% in 2017e), slightly above the – 2.2% target set by the government. This achievement will allow Spain to leave the excessive deficit procedure. The new financing model of the regions should be approved in 2018. The proposal of the experts’ committee leads to an estimated rise of €2.5bn in the overall resources amount due to the compensation of those regions whose revenues are reduced in the new model vs. the old one. Although the model has yet to be discussed, we assume that the final result will imply higher resources for the regions as a whole.