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9. SPAIN
GDP and employment growth expected to firm
After a temporary slowdown in the second half of 2014, GDP growth is projected to increase in 2015
and 2016, supported in particular by rising employment and easier financing conditions. With domestic
demand becoming the main driver of growth, the external surplus is expected to narrow significantly in
2014 relative to 2013 and then to expand slightly in 2015 and 2016. Unit labour cost growth is expected
to turn moderately positive, still allowing a further recovery in international competitiveness.
Unemployment is expected to continue declining. Spain’s general government deficit is set to narrow in
2014 and 2015.
The economic recovery in Spain gained steam over
the first half of 2014. Although a modest
deceleration is expected for the second half of the
year, the recovery is foreseen to regain momentum
thereafter amidst improved confidence, a loosening
of financing conditions and better labour market
prospects. The correction of the external
imbalance, however, is likely to slow down and
high private and public debt levels imply that
deleveraging pressures will continue to weigh on
growth.
Domestic demand drives growth
GDP expanded by 0.6% q-o-q in the second
quarter of 2014, after 0.4% in the first quarter.
Economic activity is expected to decelerate
somewhat during the second half of the year,
leading to an average GDP growth rate of 1.2% for
2014 as a whole. Growth is set to come mainly
from domestic demand but the external sector
should turn neutral, after having been a drag in the
first two quarters. Net exports are seen
contributing only slightly to growth in 2015 and
2016. The GDP growth rate is projected at 1.7 %
in 2015 and 2.2 % in 2016, under a no-policychange assumption.
equipment,
despite
ongoing
balance-sheet
correction by NFCs. The adjustment in
construction appears to be close to its inflection
point and some modest pick-up is expected, in
particular for residential investment.
Following a sharp deceleration in the second half
of 2013 and the first half of 2014, exports are set to
gain
momentum,
backed
by
on-going
improvements
in
price
and
non-price
competitiveness and some recovery in Spain's
main export markets. At the same time, imports are
forecast to accelerate as final demand grows and as
a result of the high import content of equipment
investment and Spain's exports. The current
account surplus is thus forecast to shrink to 0.5%
of GDP in 2014 and to improve slightly thereafter.
Net external lending is expected to fall in 2014 to
1.0% of GDP, before rising to 1.5% of GDP by
2016.
Graph II.9.1: Spain - Contributions to growth
7
pps.
5
forecast
3
1
-1
Activity and confidence indicators suggest that
private consumption is set to decelerate in the
second half of 2014. It is however forecast to
accelerate progressively thereafter, backed by
positive employment growth and growing real
gross disposable income, the latter also helped by
very low or even negative inflation in the very
short term. The household's saving rate, by
contrast, is projected to decline due to lower
precautionary savings and households' leverage
ratios are set to fall further as GDP and disposable
income expand.
Overall positive demand prospects, easing
financing conditions and the projected rebound in
exports are expected to underpin investment in
74
-3
-5
-7
-9
06
07
08
09
10
11
12
13
14
15
16
Net exports
Domestic demand incl. inventories
GDP (y-o-y%)
Inflation is projected to remain negative in the near
term, with average inflation over 2014 of -0.1%. In
2015 and 2016 inflation is expected to turn
positive again but to remain very moderate as the
output gap will still be negative and energy prices
are projected to fall.
Member States, Spain
Employment on the rise
Having peaked at 26.9% in the first quarter of
2013, the unemployment rate has since declined to
24.5% in the second quarter of 2014. Employment
creation accelerated in the first half of 2014, while
the labour force continued to contract. These
positive trends in employment are expected to
intensify over the forecast horizon, helped by
continued wage moderation and only modest
increases in nominal unit labour costs. With the
labour force contraction expected to fade
progressively, unemployment is forecast to fall to
22.2% in 2016.
Downside risks to the growth forecast are not
negligible. They are mainly related to the external
sector, should in particular the recovery in the euro
area be slower than expected.
as a whole is expected to narrow to around 5.6% of
GDP, down from 6.3% of GDP in 2013, net of
bank recapitalisations in both years.
In 2015, an improvement in the economic outlook
and ongoing savings resulting from previously
enacted reforms are expected to more than offset
the announced tax cuts and some relaxation of the
public sector's hiring policy. Taking the 2015
budget into account, the government deficit is
expected to fall to around 4.6% of GDP.
While interest and pension expenditures are
forecast to continue rising, falling unemployment
and the application of a new pension indexation
formula should keep the growth of social transfers
in check over the forecast horizon. The headline
deficit is expected to narrow further to 3.9% of
GDP in 2016, based on a no-policy-change
assumption.
Recovery to aid ongoing deficit reductions
Recent data indicates that fiscal consolidation is
continuing in 2014, with the general government
deficit in the first half of the year reaching 3.4% of
GDP, 0.3 pp. lower than last year (net of bank
recapitalisations). All in all, the deficit for the year
Spain's structural deficit should remain basically
flat at 2⅓% of GDP until 2015, before widening to
2¾% in 2016. Still sizable budget deficits and low
nominal GDP growth are expected to push the
public debt ratio above 100% in 2015 and to
102.1% in 2016.
Table II.9.1:
Main features of country forecast - SPAIN
2013
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
bn EUR Curr. prices
% GDP
95-10
2011
2012
2013
2014
2015
2016
1049.2
100.0
2.8
-0.6
-2.1
-1.2
1.2
1.7
2.2
610.3
58.2
2.5
-2.0
-2.9
-2.3
2.0
2.0
2.2
204.2
19.5
4.1
-0.3
-3.7
-2.9
0.4
-1.4
-0.4
194.3
18.5
3.1
-5.4
-7.0
-5.1
1.1
4.2
5.0
60.0
5.7
4.3
5.5
-3.9
2.2
8.8
7.1
8.3
349.1
33.3
5.2
7.4
1.2
4.3
3.8
4.9
5.8
324.4
30.9
5.8
-0.8
-6.3
-0.5
4.8
5.1
6.0
1041.9
99.3
2.8
-0.9
-1.2
-1.1
0.8
1.9
2.4
3.1
-2.6
-3.9
-3.0
1.4
1.6
2.1
0.0
-0.1
-0.4
0.3
0.0
0.0
0.0
-0.3
2.2
2.3
1.5
-0.2
0.0
0.0
2.0
-2.6
-4.4
-3.3
0.7
1.1
1.5
13.8
21.4
24.8
26.1
24.8
23.5
22.2
3.5
0.9
-0.6
1.7
0.5
0.9
1.1
2.7
-1.1
-3.0
-0.4
-0.1
0.3
0.4
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / f.t.e.
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (goods) (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (c)
Structural budget balance (c)
General government gross debt (c)
-0.3
-1.2
-3.2
-1.1
0.2
-0.8
-1.1
11.2
11.7
9.0
11.2
10.4
10.5
10.7
3.1
0.1
0.2
0.7
-0.3
1.0
1.5
2.9
3.1
2.4
1.5
-0.1
0.5
1.2
0.3
-3.5
-2.3
0.5
-0.9
0.7
0.8
-5.2
-4.1
-2.4
-1.1
-0.6
-0.4
-0.2
-4.5
-3.3
-0.4
1.5
0.5
0.7
0.9
-3.7
-2.9
0.1
2.1
1.0
1.2
1.5
-2.6
-9.4
-10.3
-6.8
-5.6
-4.6
-3.9
-2.8
-3.0
-6.5
-6.6
-2.8 -
-2.4
-2.4
-
-6.3
-3.6
-2.3 -
-2.2
-2.3
-2.8
52.5
69.2
84.4
92.1
98.1
101.2
102.1
(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.
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