The Spanish economy is showing further signs of stabilization in 2H13, driven by cheaper funding costs, banking restructuring, and improving markets. Underlying trends, however, still look weak, austerity measures are delaying consumption recovery, unemployment is an issue and deflationary pressures have returned. A final cleanup of the banks would help, in our view, to reopen credit and lead to a faster economic recovery.
On the banking side, we are still positive on funding, while credit quality looks very weak, with bankruptcies at record high levels and asset quality still not improving. The recapitalization of weaker banks has led to funding pressures easing and concentration should accelerate from here. Smaller banks will have to prove they can make money in this low-rate environment, where we expect irrational players to disappear.
You can download the whole report by J.P. Morgan here: Spain in Pictures.