More Experts Predict a Rise in Spain’s GDP

More Experts Predict a Rise in Spain’s GDP

More Experts Predict a Rise in Spain’s GDP

Spain’s economy is finally on the road to recovery after almost five years of a deep downturn – and everyone is talking about it! The economy has grown for three consecutive quarters, and in the first quarter of this year, it was at its fastest quarterly pace in six years. Top banks like BBVA and think tanks like Funcas are all upbeat about the outlook, forecasting an acceleration in growth through 2014 and 2015.

In the last three months, businessmen and economic gurus have improved their forecasts for 2014 and 2015 GDP growth by nearly half a percentage point, according to an economic study by consultancy firm PwC. The study corresponds to the second quarter of this year. Funcas recently raised its forecasts for economic growth to 1.4 per cent for 2014, up from 1.2 per cent, and to 2.2 per cent from 1.8 per cent for 2015.

The government has already updated its forecast for 2014 to growth of 1.2 per cent from a previous projection of 0.7 per cent and last year’s contraction of 1.2 per cent. It is predicting 1.8 per cent growth next year and 2.3 per cent by 2016.

CONSUMPTION PICKS UP, EXPORTS FUEL UPTURN

So what’s fuelling Spain’s economic upturn?

For BBVA’s research department, the gradual recovery in private consumption, particularly in durable goods, is one factor. Improving fundamentals, less uncertainty and a gradual up tick in new credit flows have all boosted domestic demand.

Spanish banks have struggled to recover from a 2008 housing crash that saddled them with huge unpaid property loans. Hefty provisioning on these bad debts left many lenders short of capital, making access to credit increasingly difficult for businesses and households. But the progress in the private sector’s deleveraging process is bearing fruit and Funcas is confident the credit tap will be turned on again by year-end. It forecasts a credit growth of 3-4 per cent in 2015.

Dynamic export growth is also driving the economic recovery, combined with an increase in foreign investment. These components are expected to remain strong this year and going forward.

FURTHER REFORMS FOR A SUSTAINED RECOVERY

There is still more work to do to ensure that Spain’s economic turnaround is sustainable. Further reforms are needed in the financial sector, as well as in other areas like public administration. Additional reforms to improve the effectiveness of active employment policies and make the labour market function more efficient will also be required to create jobs. A cornerstone of continued economic growth will be the upcoming tax reform. Changes to personal income tax and VAT will account for a large part of the tax system overhaul, but there will also be a raft of incentives for businesses.

For information on investing in Spain, contact corporate law firm Argali Abogados.

Leave a Reply