Spain Country Risk Report Q1 2016
Spain's economic growth story will remain relatively strong in 2016.
However, elevated political risk (elections, Catalonia) will dampen consumer and investor confidence in Q415 and Q116, leading to a deceleration in growth in the coming quarters.
Sustained current account surpluses mean Spain's external imbalances will pose fewer threats to financial stability than in years gone by. However, these surpluses will be insufficient in size to materially unwind the country's large net external liability position.
A further leg down in global oil prices means deflation has further to run. This is net positive for Spain's economic recovery, by boosting household real incomes, reducing the energy import bill, and by increasing the chances of ECB QE being extended beyond its original time frame.
The result of the Catalan regional election in September is unlikely to help the secession movement. Full independence remains a distant and unlikely prospect.
Major Forecast Changes
Recovering demand from core eurozone economies and a lower energy import bill (due to collapsed global oil prices) have prompted us to revise our current account forecasts to 1.0% of GDP in 2015 and 0.9% in 2016, from 0.7% and 0.6% previously.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Election Bodes Poorly For Catalan Secession
- The outcome of the September Catalan regional election is unlikely help the secessionist movement. Full independence remains a
- distant and unlikely prospect.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- Political Challenges Beyond The Recession
- Spain's ongoing economic malaise has put several structural political issues into the spotlight. Challenges over the next decade will
- include unemployment, demographic changes and constitutional questions.
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Economy Health Check: Election Uncertainty Dents Growth Outlook
- While Spain will remain a eurozone growth outperformer, real GDP growth will soften over the coming quarters.
- TABLE: ECONOMIC DASHBOARD
- GDP By Expenditure Outlook
- TABLE : PRIVATE CONSUMPTION FORECAST
- TABLE: REAL GDP FORECAST
- TABLE: GOVERNMENT EXPENDITURE FORECAST
- TABLE: FIXED INVESTMENT FORECAST
- TABLE: NET EXPORT FORECAST
- External Trade And Investment Outlook
- Surpluses Mask Underlying Problems
- Sustained current account surpluses mean Spain's external imbalances will pose fewer threats to financial stability than in years gone
- by. However, these surpluses will be insufficient in size to materially unwind the country's large net external liability position.
- Outlook On External Position
- TABLE: CURRENT ACCOUNT
- TABLE: FINANCIAL ACCCOUNT
- Fiscal Policy And Public Debt Outlook
- Debt Sustainability Profile To Remain Shaky
- As long as government borrowing costs remain low, Spain's large public debt load and wide fiscal deficit are unlikely to threaten
- financial stability. However, extremely favourable financing conditions will not last forever, and a significant rise in borrowing costs would
- make Spain's debt sustainability profile look increasingly precarious.
- Structural Fiscal Position
- TABLE: FISCAL POSITION
- TABLE: GOVERNMENT DEBT
- Monetary Policy
- Deflation Net Positive For Economy
- A further leg down in global oil prices means deflation has further to run. This is net positive for Spain's economic recovery, by boosting household real incomes, reducing the energy import bill, and by increasing the chances of ECB QE being extended beyond its original timeframe.
- TABLE: REVENUE AND EXPENDITURE SOURCES
- Eurozone Monetary Policy
- More ECB Easing To Weigh On Euro:
- Banking Sector Update
- Stability Much Improved
- The outlook for Spain's banking sector has been much improved by healthy capital accumulation in recent years, meaning the sector is now much less likely to pose systemic risks to financial stability. Weak lending means banks will remain too reliant on reducing operating costs and lower provisions for profits.
- Banking Sector Risk Components
- TABLE: MARIO DRAGHI QUOTES FROM INTRODUCTORY STATEMENT & PRESS CONFERENCE OF 22 OCTOBER 2015
- TABLE: BANKING SECTOR RISK SNAPSHOT
- Chapter 3: 10-Year Forecast
- The Spanish Economy To 2024
- Slow, But Steady Growth Ahead
- In order to correct for the massive imbalances built up during Spain's decade-long economic boom, the economy is now coming through a period of rebalancing that will result in a lower long-run growth potential. While an internal devaluation will help restore some of Spain's competitiveness over the long run, the process will prove long and painful. Ultimately, compared with the levels of growth enjoyed since euro adoption, the next 10 years will show only modest economic growth rates.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: DEVELOPED STATES - LABOUR MARKET RISK
- TABLE: DEVELOPED STATES - LOGISTICS RISK
- TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
- TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
- Chapter 5: BMI Global Macro Outlook
- Global Outlook
- Exit The Dragon
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %