RaboResearch - Economic Research

Spain: solid GDP growth on the back of domestic recovery

Economic Update

  • We expect the Spanish economy to grow around 2¼% in 2015
  • Growth is primarily driven by private consumption
  • Public consumption and investment will also contribute positively
  • Net exports are expected to contribute negatively to GDP as import growth remains strong on the back of domestic demand

Private and public consumption on the rise

We expect a solid GDP growth for 2015 and 2016, driven primarily by private consumption. Consumption growth in 2015 is supported by deflation which pushes the real wages up. This deflation is the result of the strong decline of the oil price in recent months (figure 2).

Figure 1: Solid return to growth in Spain in 2014
Figure 1: Solid return to growth in Spain in 2014Source: Macrobond
Figure 2: Low oil prices tip the balance towards deflation
Figure 2: Low oil prices tip the balance towards deflationSource: Macrobond, Rabobank

The low oil price will remain a drag on inflation for most of 2015. In addition to deflation, moderate employment growth and a modest wage increase will also further support consumption growth. Also public consumption is expected to contribute positively as the Spanish draft budget for 2015 points to some budgetary stimulus in 2015 and 2016. This is hardly surprising as the parliamentary election is approaching and the incumbent Partido Popular (PP) leads in just half of the opinion polls, while new comer Podemos dominates the other half. The positive contribution of government consumption to GDP may persist in 2016. The extent to which Spain will pursue further austerity is highly dependent on which party will win the elections. Especially a victory of the populist party Podemos is unlikely to lead to significant budgetary tightening in 2016.

Table 1: Forecast table Spain
Table 1: Forecast table SpainSource: Macrobond, Rabobank

Investment positive but moderate

The year 2014 saw the comeback of investment for the first time since the start of the crisis. This recovery of investment coincided with stronger activity in the industrial and construction sectors (figure 3), which also generated more hiring. Looking forward we see strong PMI’s pointing to sustained growth in the industrial sector. Therefore we expect this positive trend in investment to persist, leading to a sustained contribution of investment to GDP throughout 2015 and 2016.

Figure 3: Sectoral contributions to GDP growth
Figure 3: Sectoral contributions to GDP growthSource: Macrobond, Rabobank
Figure 4: Import growth outstrips consumption growth for a year now
Figure 4: Import growth outstrips consumption growth for a year nowSource: Macrobond, Rabobank

Dog days of net exports contribution to GDP growth are over

After the crisis we have seen a very strong contribution of net exports as the current account deficit turned from negative to positive in the space of five years. In 2013, the current account balance peaked at 1.5% of GDP in 2013Q4. Since then import growth has picked up (figure 4) on the back of the strong domestic demand. We expect the strong growth of imports to persist, but we have two observations. Firstly, exports have been picking up speed again in recent months. Secondly, the euro has depreciated with the advent of quantitative easing in the eurozone. The low euro will support exports and decrease imports albeit modestly as most of Spain’s trade partners are in the Euro area. Overall these effects are expected to lead to a modestly negative contribution of exports in 2015.

Jurriaan Kalf
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 88 726 7864

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