Pre-Crisis Growth Levels Unlikely
BMI View: Spain's recovery will gather steam in 2014 and 2015, with exports remaining strong due to improving competitiveness. Consumer spending will also support growth, but a lack of progress on deleveraging will ensure that household incomes remain under pressure.
The worst is now over for Spain's economy, reflected by the country registering its second successive quarter of economic growth in Q214 (see chart below). We expect the recovery to pick up pace over the coming quarters, and forecast real GDP growth of 1.3% in 2014 and 1.7% for 2015. Nevertheless, the unbalanced nature of the recovery will prevent growth from returning to pre-crisis levels.
We believe Spanish real GDP growth will remain overly-reliant on exports, while squeezed disposable incomes will prevent household spending from a full recovery. Declining unemployment (down from 26.0% in 2013 to 24.5% in Q214) is making investors overly complacent about the challenges still facing households. Youth unemployment remains above 55%, wage growth is stagnant and households have made a lack of progress on deleveraging. In our view, these factors imply the economic recovery remains unbalanced and is not yet built on firm foundations.
|Recovery Gathering Steam|
|Spain - Real GDP Growth, % chg y-o-y|