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Spain 2019. The economic slowdown starts

 

GDP growth expected to decline to +2.4% in 2019e

After four consecutive years of economic growth rates in excess 3%, we expect a reduction in this rate to +2.8% in 2018e, +2.4% in 2019e and +2.3% in 2020e although downwards pressures may prove our current forecast optimistic. However, Spain may surpass EU growth rate once again in 2019e by 0.6pp.

The external pressures

We identify four main pressures for the Spanish growth in 2019e: (a) the evolution of the oil price, which averaged USD 54.2 in 2017 and has risen to USD 81.2 as of September, 25th; (b) the risk of a commercial war due to US new politics; (c) the forthcoming increase in interest rates; and (d) the political instability derived from Brexit, and extremist parties. The main implications of these pressures in our economy are: lower disposable income for households and, consequently, lower private consumption, a reduction in the current account surplus, and a lower contribution of the external demand to GDP growth.

The internal pressures

We also identify four additional internal pressures: (a) salaries are increasing and competitive gains based on their control may no longer benefit our economy; (b) the savings ratio of the households is at is minimum level of the last 15 years (5.7% of gross disposable income in 2017) and may start to rise should any risk materialize; (c) the new electoral wave (municipal, regional and European election in May, 2019) may prevent cost conscious politics and have a negative impact on public deficit and debt; and (d) the lack of a reforms’ agenda to solve the structural problems of our economy, principally, pensions and precarious employment.