Spanish bailout: better sooner than later, says Morgan Stanley
Spain is likely to apply for sovereign support sooner rather than later, and there will be several opportunities to make at least some progress at the upcoming European policy meetings, according to research published by Morgan Stanley.
Delays on a formal request for financial assistance remain likely, depending on the Spanish regional election calendar and core Europe’s willingness and ability to approve the plan for sovereign support in parliaments, but will not be well received by financial markets.
“With its new budget measures, Spain seems likely to satisfy most of Europe’s demands outlined in the Stability Programme – except perhaps on some aspects of the pension reform. But the official growth projections are too optimistic and the fiscal targets remain out of reach,” economists at the bank said.
Morgan Stanley remains bearish on the near-term economic outlook for Spain, and feel comfortable with a below-consensus cal: “We haven’t changed this view and, after all, there’s no shortage of reasons for this, given recent macro data”.
The Spanish economy is continuing to rebalance at a fast pace and as shown by the rapid narrowing of its current account deficit. In the bank’s view, this is underappreciated in the marketplace, even though it might become quite important further down the line.
“Spain has a comparative advantage it can build on. Its exports are structurally strong – and getting stronger. With unit labour costs coming down and productivity rising, Spain seems to be recovering some of its lost price competitiveness, thus adding to a robust export performance,” Morgan Stanley said.