Despite the slowdown in the global economy, the most important indicators of the Spanish economy confirm prolongation of the expansive phase. At Equipo Económico we foresee an increase in GDP of 2.4% in 2019 and 2.1% in 2020. Inertia in activity continues to be sustained in the reforms implemented in previous years, and again in the historical minimum interest rates.
There will still be a bit more waiting, who knows if until next October 31st, to be certain of how the United Kingdom will leave the European Union (EU). Only then there will be enough information enabling us to analyze what real effects Brexit will have. At the moment, announcements related to future tariff policies in case of a no deal situation, together with the analysis of the current commercial patterns between Spain and the United Kingdom, allow us to identify the automotive sector as one of the potentially most affected. However, the effects are not homogeneous throughout the Spanish Regions. Thus, the production and, therefore, the employment level of the automotive sector in Aragon, Navarra and Castilla y Leon show a greater degree of exposure to the British market than other regions.
The case of Italy in the last year, and of other countries in the past, show the negative effect that the wrong economic policy messages can have. The Spanish economy continues to grow noticeably above the Eurozone average. However, it is immersed in a different phase of the economic cycle with lower expansion rates. The design of economic policy plays a determining role in the economy’s cyclic performance. Yet the uncertainty generated by numerous economic policy messages, at the national and regional level, has resulted in a significant drop in the number of car registrations in Spain in the last few months.
The increase and materialization of certain risks for global growth throughout 2018 have worsened the outlook for the coming years. In Europe, Brexit will continue to represent the main political risk facing the region during 2019. The business strategies to deal with it necessarily differ depending on the considered scenario. Among them, the possibility of a hard Brexit in 100 days must be accounted for.
The Spanish economy is immersed in a downturn phase of the expansive economic cycle, with more moderate variation rates. According to estimates in Equipo Economico, GDP will grow 2.6% in 2018 and 2.2% in 2019. These figures mean a downward revision with respect to our previous estimates, as a result of the change in external tail winds, lack of economic reforms since 2016 and the uncertainty generated in the last months by the messages on economic, budgetary and fiscal matters.
Spain’s economic growth has continued to show notable dynamism in the first semester 2018, clearly above the European average. It moves forward along the same lines as the global product. However, we also observe the growing divergence occurring as the year goes on between the robust economic data and the greater uncertainty arising from an increased risk, both for the global economy and Spain.
The Spanish economy is still undergoing intense and differential economic growth regarding the euro area. In addition, it is progressing with a more solid basis than previous periods of growth. However, the scenario we consider for the Spanish economy is now subject to upside risks, both inside and outside Spain.
Spanish Regional Governments are clearly benefiting from the intense economic growth of the national economy. However, there has been a very important increase in the regional debt over the last years. In this context, the Extraordinary Liquidity Mechanisms (ELM) have gained great importance in the share they represent of the regional debt. We now expect the return of the regions to the markets to finance their debts and the improvement of their debt-to-GDP ratio.
The Spanish economy have started the year 2018 with strong inertia. The most recent indicators point to the fact that consumption growth has accelerated in the first quarter of 2018. In this way, GDP growth will again be supported by the strength of household consumption, deemed to increase by 2.3% this year and 2.1% next year. Several factors will continue to support positive consumption data in the coming months. In this scenario, we estimate consumption will only reach its pre-crisis levels in the second quarter of 2019, leaving room for recovery.
The Spanish economy has started this year 2018 with a strong inertia in its advance rate, which takes Equipo Económico to maintain our forecast for last December to a GDP increase of 2.8% in 2018. We estimate that this growth will also spread up during 2019, with an increase of 2.4% in GDP. The main risks in this positive scenario are political, associated with populist movements inside and outside of Spain.
In 2017 there was an increase in vehicle sales in Spain compared to previous year but at lower rates, once again revealing that it is still upwards compared to the historical figures of 2007. Regarding exports, the fall in sales to the United Kingdom reflects a new negative effect because of the Brexit.
In an auspicious international context, from Equipo Economico we foresee that Spanish GDP will continue to move forward in 2018 at an annual rate of 2.8%. The Spanish economy is currently benefiting from the expansive cycle initiated after the deep crisis, thanks to the economic reforms undertaken, and despite the impact of the increase in uncertainty associated with the situation in Catalonia.
Although hotel industry has been encouraged by excellent tourism data, is it really benefiting to its full potential? There is a negative trend in hotel supply in relation to the number of visitors. The irruption of alternative business models that offers tourist accommodation, such as technological platforms of collaborative economy between private individuals together with the new patterns of consumption of tourists, have led to the emergence of a new and important competitor.
Within a more encouraging international scenario, the Spanish economic growth has outperformed the most optimistic forecasts throughout 2017. In Equipo Económico we estimate that the Spanish economy will continue growing vigorously, at a 3.3% GDP. The momentum created during this year will sustain the growth rate throughout 2018, maintaining it near a 3% GDP. We therefore estimate a growth of 2.8% GDP for the coming year.
After the lengthy period experienced by the Spanish economy since the end of 2013 with a moderate and even negative performance of prices, with a fall in prices of 1.1% posted in April 2016, the year-on-year Consumer Price Index (CPI) in January and in February was 3%, which implied a significant acceleration in price increases. This is largely due to the energy component of the CPI, which will gradually moderate as the year progresses, closing 2017 with average inflation of 2.2, according to estimates by Equipo Económico. This return of inflation, however, has not been risk free.
The real estate market in Spain is in a bullish mood and continues steadily on the path of recovery and sustainable growth, after having undergone an important adjustment in the last decade, both in terms of volume and prices. Thus, during the past year, home sales experienced growth of 13.6% to attain 403,866 transactions, making three consecutive years of upward trend. The challenge facing the real estate sector is, in any case, twofold: stabilizing the sector and avoiding the mistakes and excesses committed in the past. Therefore, recovery must be prudent, sustained and gradual throughout 2017.
The Spanish economy is closing 2016 growing by 3.2% in terms of GDP to position itself regarding the Euro area in terms of economic growth, job creation and boost in exports. For 2017 we foresee GDP will grow 2.7%, thanks to the strength with which the year is commencing. Nonetheless, in a less favorable global context progress must be made on reforms; we must not return to those implemented in the last few years.