JPMorgan Chase Declares ‘Spain Is Back’

JP Morgan Declares 'Spain Is Back'

JPMorgan Chase Declares ‘Spain Is Back’

Spain’s economy is on the road to recovery, judging by recent positive data. And this news has gone down well with the world’s top investment banks, keen to highlight the reforms that have enabled Spain to exit a two-year recession.

In a January research note, JPMorgan Chase praised the Spanish economy’s “remarkable adjustment” since mid-2013, raising its real gross domestic product (GDP) forecast for 2014 to 1 per cent from 0.7 per cent previously.

This vote of confidence is significant given the US-based financial services firm’s long-time interest in Spain and the influence its “buy” or “sell” recommendations have on investors.

So why is JPMorgan betting on Spain again?

Key factors include improved Purchasing Managers’ Index (PMI) data in both the manufacturing and service sectors, the uptick in domestic demand and strong export growth.

PMI DATA, EXPORTS UNDERPIN BULLISH OUTLOOK

Strong PMI data over the last three months has shown that improved sentiment in industry, services and retail is offsetting continued depressed construction activity. Spain’s last economic boom was fuelled by a construction and property bubble which burst in 2007-2008. The global recession and the European sovereign debt crisis compounded the problem.

The service sector, which closely reflects domestic demand, made a positive start to 2014 as activity and new orders continued to expand. The service industry’s recovery is good for exports, which together with a revival in consumer spending helped pull the economy out of the doldrums in the third quarter of last year.

Exports accounted for 33 per cent of Spain’s GDP in 2013, up from 17 per cent in 2007, driven by increased competitiveness due to lower labour costs.

So is it time to run with the bulls again?

While there are still some headwinds, like high unemployment and a continued credit squeeze, JPMorgan believes conditions for growth are in place. Last month, Spain’s Economy Minister Luis de Guindos said GDP would expand by close to 1 per cent this year compared to the current official figure of 0.7 per cent.

HEADWINDS REMAIN, BUT MANAGEABLE

A plus point for Spain’s economy is the private sector’s progress on deleveraging. Banks and companies have sold off property and other assets to cut debt and clean up their balance sheets. Nevertheless, bank credit remains in a stranglehold and high lending rates continue to curb corporate expansion.

Despite these financing restrictions, JPMorgan is confident Spain’s economy has sufficient dynamism to grow this year.

Unemployment remains a key concern, particularly amongst youth, but most analysts agree there is traditionally a lag between economic growth and job creation. Spain’s unemployment rate stands at 26 per cent, which the government hopes to trim down to 25 per cent or less by end-2014.

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

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