The Foundation of Savings Banks (Func) has lowered its forecast tenth of growth of the Spanish economy for 2014, to 1.3%, but has remained at 2.2% increase of estimated GDP for 2015.
Func explains that he has revised down its forecast for this year due to slower growth than expected for the second half amid doubts that cast some figures as the recovery of consumer durables, especially automobiles. “Do not expect this type of spending continues to grow at such a rapid pace,” says Func, which further indicates that the background conditions are not consistent with an autonomous recovery in consumption if no other engine that sustains growth, because there there is scope for more households into debt or further reduce their saving. He also believes that there are doubts about the continuation of the strength of investment in a context in which the prospects for global recovery might not occur.
In his opinion, the greatest risk is in the euro zone, because if not back in the coming quarters, the recovery of the Spanish economy would “brake” which require to reconsider the 2014 and 2015 figures also outside the current account deficit would widen, the would involve new uncertainties about the sustainability of the recovery in the medium term. In this sense, states that the effectiveness of recent measures by the European Central Bank (ECB) will be “limited” if not accompanied by changes in fiscal policy and structural reforms in the euro area overall. He also warns that its effects on economic activity can take many months to feel.
Another risk comes from seeing Func “unpredictable impact” on financial markets retreat of quantitative easing in the United States and rising interest rates. According Func, some financial assets may be overvalued by abundant liquidity in recent years, so moderation of it might cause price adjustments and increases the profitability of debt.
temporary Risk
Despite these risks, Func believed that some of these factors can be considered” transient “and therefore not will affect the growth of 2015, so it has decided to keep the forecast at 2.2%. It considers that the expected improvement in financial conditions next year and the effects on household spending of tax reform predict an acceleration of growth next year.
Func has changed the composition of GDP by continuity in the second quarter of the unbalanced pattern of contributions of domestic demand and the foreign sector. In particular, we have revised up the contribution of domestic demand and imports in 2014 and 2015 and have lowered the export figures.
The household consumption will grow 2.1% this year and 2.6% next year, more than initially expected from faster growth in the second quarter and the upward revision of the figure for the first quarter. According Func, growth will be supported by a slight increase in disposable income –for increased employment and business income, together with the decrease in payments for intereses–, but also in reducing the savings in the case of 2014.
More consumption in 2015
In 2015, this component of demand will receive a further boost derived from the slope of the income tax, which also allow recovery of savings. Consumption of general government, meanwhile, increased by 0,2% this year and fall by 0.7% next.
Func believes that investment in construction “soften significantly ‘rate of decline to 4% in 2014 and 0.1% in 2015 In particular, believes that the turnaround of the property market will accelerate the absorption of unsold housing stock, which will enable the investment in residential construction begins to grow in the second half of next year, although the evolution for the full year will still be negative. The investment in equipment will grow by 7.2% and 6.6% in 2014 and 2015 respectively.
Exports of goods and services will grow by 4.4% half a point less than before, the negative development of the European economy, while in 2015 was 5.4%, subject to the condition that the recovery in the area gain strength increase in the coming quarters. The imports, meanwhile, will increase by 5.5%, half a point more. 2015 growth of 5.3% is maintained.
Job creation this year and next
In this context, Func believes that job creation in terms of jobs full-time equivalents, will amount to 0.7% this year and 1.5% next year, one tenth more than previously estimated. The unemployment rate, meanwhile, will reach 24.5% in 2014 and 22.5% in 2015, one tenth less. Reducing unemployment unit labor costs should also be a drop in the labor force.
With this increased employment, productivity growth will slow “significantly” and continue to decline at a rate “much lower” than that observed in recent years, since the wage growth will remain “very content”. Finally, as a result of the continued deterioration of the external balance, Func expects a deficit of current account balance of 0.3% of GDP this year and next, compared with surpluses of 1.1% and 1.6% posed in previous forecasts.
The public deficit, meanwhile, will decline this year to 5.5% of GDP-the target agreed with Brussels and to 4.6 % in 2015, slightly above agreed. The favorable impact of the cycle and lower interest expense of public debt allow this moderation, along with the increase of the denominator of the ratio of the increase in nominal GDP.
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