Barclays on Spain: “pace of economic contraction is decelerating”

The Bank of Spain estimated recently that Q1 real GDP contracted by 0.5%. According to Barclays, both the survey and hard data on economic activity point to a deceleration in the pace of economic contraction and to an overall growth rate of -1.6% in 2013.

“We remain of the view that the Spanish economy is likely to continue shrinking for the rest of the year, albeit at a decelerating pace, and expect positive growth to return in H1 2014,” the bank said following the release.

Domestic demand remained very negative due to the necessary deleveraging process and the relatively tight financing conditions, which explains the shrinking private consumption and investment, and to the necessary fiscal consolidation to stabilise public debt dynamics.

In 2012, the government achieved an improvement in the cyclically-adjusted primary balance of about 3% of GDP.

“We expect fiscal consolidation to be more moderate in 2013. The slightly more moderate fiscal consolidation along with a gradual improvement in the financing conditions as shown by the tighter sovereign spreads and a slight improvement in global growth should further support net exports and gradually reduce the negative contribution of domestic demand,” Barclays said.

Meanwhile, the export performance has been very positive. In particular, exports of tradable services have been particularly encouraging, with a trade surplus 75% higher than before the crisis in this sector.

“This has been achieved on the back of increasing labour productivity (mostly due to labour shedding) and more recently as a result of wage moderation. We project the current account to print a surplus in 2013 or about 1% of GDP,” Barclays said.


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