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Spain Country Risk Report Q1 2019

Spain Country Risk Report Q1 2019

Spain's new government led by the Spanish Socialists Workers' Party (PSOE) leader Pedro Sánchez is unlikely to last full term With a minority in parliament, the new administration will suffer from the continuous pressure of regional, separatist and anti-establishment groups That said, early elections will likely result in another weak government

Our core view remains that Madrid and Catalonia will eventually come to the table to negotiate, and certain concessions and constitutional amendments will be agreed in an attempt to appease separatists, namely greater fiscal autonomy This will take time, however, and uncertainty is likely to persist as the negotiations take place, as well as ongoing civil unrest in light of remaining support for independence

The Spanish economy will gradually lose steam over the coming years, largely as the economy begins to hit the limits of supply Further headwinds will also build, including weak productivity gains, tighter monetary policy and weaker external demand

Fiscal consolidation will slow over the coming years in Spain, as the PSOE minority government is forced into a number of fiscal concessions in order to pass legislation

Spain's current account surplus will gradually narrow over the coming years, as external demand softens and imports remain robust While we see few near-term external financing risks, direct investment inflows are likely to continue suffering as political uncertainty remains elevated

Monetary policy will remain relatively loose in the eurozone in 2019, as core inflationary pressures fail to pick up substantially and economic data releases increasingly point towards a growth slowdown However, we forecast the European Central Bank to begin rising rates in H219

Key Risks

Given that Spain's public debt will remain sizeable in the years ahead, we believe that the eventual normalisation of ECB monetary policy represents a significant medium-term risk for Spain

Following the formation of a PSOE-led minority government, increasing political gridlock in the national parliament is likely to negatively impact legislation and political stability

Enduring deep divisions surrounding Catalonia imply that a severe escalation of tensions at some point down the line cannot be precluded Spain Country Risk Q1 2019


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
External Environment To Dampen Growth, But Spain To Remain A Eurozone Outperformer
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Monetary Policy
Not Much Scope For Inflation To Edge Higher In Spain
Monetary Policy II
The End Of QE: Risks To The Eurozone Banking Sector
Fiscal Policy And Public Debt Outlook
Spain's Budget: No Easy Way Out
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
EUR: ECB To Underpin Strength, But Downside Risks Persist
TABLE: FITCH SOLUTIONS EUROZONE CURRENCY FORECAST
Spain Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The Spanish Economy To 2027
Structural Imbalances To Weigh On LT Growth Potential
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Domestic Aims Underpinning Spain's Hard Line On Gibraltar
Domestic Politics II
EU/US Trade Dispute: Threat Of Tariffs On Autos Remains
Long-Term Political Outlook
Political Challenges Remain Despite Economic Recovery
Operational Risk
Developed States
TABLE: LABOUR MARKET RISK INDEX
TABLE: LOGISTICS RISK INDEX
TABLE: CRIME AND SECURITY RISK INDEX
TABLE: TRADE AND INVESTMENT RISK INDEX
Global Macro Outlook
Continued Growth Divergence And Policy Risks Ahead
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: SPAIN – MACROECONOMIC DATA & FORECASTS

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