The Spanish economy is growing at cruising speed: 3% in now within touching distance

speed1TC

Economists at the Bank of Spain have revised upwards their projections for 2015, with GDP now expected to grow by 2.8%, as opposed to the 2% previously forecasted. The latest revision comes after the economy grew by 0.8% more than was expected in the first quarter of the year. The current consensus of analysts at think-thank Funcas predict growth of around 2.6%, but the likelihood is that this figure will be revised upwards in the next quarter.

The ECB’s QE programme, the decline of the oil price and the depreciation of the euro, aligned with a reduction of income tax has led to a faster acceleration of consumption than was anticipated. Bank of Spain officials refer to the above factors in their latest report, but added there were other factors that should also be considered. Notably, the bank stated that the adjustments made to correct imbalances in the Spanish economy are starting to pay dividends, as is the case with the structural adjustments made elsewhere in Europe.

It appears that the aforementioned temporary factors are having a greater impact on growth than the ‘policies being deployed nationwide’, the economists at the Bank of Spain noted.

The impact that these temporary factors will have can be quantified approximately, except in the case of the ECB’s QE programme. The collapse in the oil price, which is now below half the price it was twelve months ago, could end up saving the economy €20 billion-or 2% of GDP. The euro has fallen by more than 20% so far this year, with experts calculating that the drop in the single currency will add 0.5% onto GDP growth. Furthermore, the improvement in the economy will provide a boost of over €14 billion in tax revenues to the public accounts over the next two years.

Squaring the circle, the historic low costs of borrowing is now funding government debt at levels unimaginable a couple of years ago. The last pieces in the economic jigsaw would be a reduction in unemployment and a greater weight of new hires being awarded full time contracts. The worrying escalation of public debt has been halted, while political instability does not appear to be on the horizon.

 

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

Be the first to comment on "The Spanish economy is growing at cruising speed: 3% in now within touching distance"

Leave a comment