The Risks For The Spanish Economy In 2017 Begin To Take Shape

euro españa

Spain’s GDP growth rate in the first half of this year has been solid. In the second quarter, GDP expanded 0.7% quarter-on-quarter nearly in line with the 0.8% rise in the first quarter, translating into a 3.2% year-on-year increase. So overall, the balance for the first half of 2016 has been favourable. And the strong performance over this period means that it is very likely GDP growth will be close to 3% for the full-year.

Domestic demand, public sector spending, exports, job creation and private sector financing conditions have all made a significant contribution during the first half. But leading analysts see risks of a slowdown in the coming quarters and, particularly, in 2017. Many of them have lowered their forecasts for next year due to the implicit risks from Brexit.

Although it is not at all clear how Brexit will proceed, its impact on the financial markets, for the time being, has been moderate. In the short-term there will be negative consequences for UK economic growth and the uncertainty will curtail investment decisions which will hit exporters above all. The importance of the economic relationship between Spain and the UK means that it would be sensible to conclude that exports of Spanish goods, the exchange of goods and services and the exposure of private companies will all be affected.

In addition to this external uncertainty, there is also the lack of definition in Spain’s domestic economic policies, which is the result of the country’s political situation and the large public sector deficit. This means that it’s likely fiscal policy will be more contractive in the future.

As a result of all the above, and despite the fact the recent positive data on the Spanish economy allows us to expect nearly 3% GDP growth in 2016, there are downward risks, particulary in 2017. This will be a year when there could be a notable slowdown in GDP growth.

*Image: Flickr/ Fotero

 

About the Author

Carlos Díaz Guell
Editor at consensodelmercado.com and innovaspain.com, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.