Spain’s trade deficit in the first half to June 2016 dropped 31.4% to 7.878 billion euros from a year earlier, driven down by record exports, according to data published on Friday by the Economy Ministry.
The EU Comission has decided not to fine Spain and Portugal for its deviation in the public deficit in 2015. Both countries, which have been traditional fiscal sinners since the crisis began, did not take effective actions last year. Although symbolic, Brussels could have imposed fines of up to 0.2 percent of GDP on Madrid and Lisbon, around 2.1 billion euros in the case of Spain.
Last week the Council decided that Spain and Portugal’s recent efforts to reduce deficit were not enough. This lead to the two countries being fined, the first time this happens since the inception of the euro.
The trend in the variables observed indicates that the recovery of the Spanish economy continued during the first half of 2016. With nearly 80% of the information available for 2Q16, the MICABBVA model estimates that quarterly GDP growth (QoQ) will have completed one year at around 0.8%. If confirmed, this stabilisation in the pace of expansion would give an upward bias to the growth envisaged in BBVA-Research’s baseline scenario for 2016 (2.7%).
In the last few years, Spain has halved its deficit and emerged from a recession and the threat of a bailout which could have pulled all the eurozone down with it. Furthermore, it is now one of the countries with the highest growth – when the rest of the eurozone is still dragging its feet eight years after the start of the crisis – and unemployment is trending lower. But while caretaker Economy Minister Luis de Guindos keeps repeating Spain may not be sanctioned for non-compliance with its deficit target, everything indicates this will happen at the beginning of July.
Some drivers are so happy when they don’t have to pay their traffic fine immediately, but without realising that a few days they will receive official notification with a surcharge. Something like this has happened with Brussel’s decision to refrain from imposing an immediate fine on Spain for failing to meet its deficit commitment until June 26th. In exchange, the EC has demanded a tough adjustment amounting to 8 Bn€ over this year and next.
On the same day as Spain’s Economy Minister De Guindos announced new economic forecasts, which for some were completely off-the-wall, the government also announced that it will give civil servants back half of the extra payment which was suspended in 2012, worth over 550 million euros.
For the last few months, the European Commission has been warning Spain that it will certainly not comply with its public deficit targets for 2015 and 2016. Many analysts are in agreement with this, while Economy Minister Luis de Guindos rejects it. This is the panorama facing the new Spanish government which, for the moment, King Felipe VI has asked socialist leader Pedro Sanchez to form.
The Spanish economy is in the “champions league” in terms of GDP growth, but has failed the deficit, unemployment and debt exams. The autumn forecasts from the European Commission raised the deficit non-compliance to 4.7% of GDP for this year and 3.6% for 2016, well off the levels of 4.2% and 2.8%, respectively, previously agreed with Brussels.
The European Commission estimates Spain’s budget deficit will be 4.5% of gross domestic product in 2015 instead of the required 4.2%. The discrepancy will widen in 2016, with an estimated deficit then of 3.5% of GDP compared with the 2.8% target.