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Spain Country Risk Report Q4 2015

  • August 2015
  • -
  • Business Monitor International
  • -
  • 55 pages

Core Views

Spain's economic recovery will outpace the eurozone in 2015 and 2016
This recovery will mainly be driven by private consumption, with households' benefitting from cheap oil and recovering consumer confidence
Rising political uncertainty will pose one of the main risks to the country's economic recovery
The rise of a four-party political system is making elections due by December 2015 very hard to call, with Spain probably headed for its first coalition government since its transition to democracy

Fiscal consolidation efforts will continue at a sluggish pace, with rising opposition to austerity and looming elections likely to result in the government offering fiscal concessions to voters over the coming quarters

Major Forecast Changes

We have revised up our real GDP growth forecasts for Spain to 25% in 2015 and 22% in 2016, from 22% and 20% previously
This reflects household spending benefitting more from cheap oil more than we had previously anticipated, as well as the European Central Bank's (ECB) quantitative easing programme weakening the euro, which has boosted exports

Table Of Contents

Spain Country Risk Report Q4 2015
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics I 8
PP Banking On Recovery And Greek Uncertainty8
The ruling PP administration will pin its re-election hopes on Spain's recovering economy and uncertainty in Greece No party is likely
to win a majority in the December 2015 election Uncertainty surrounding the vote and post-election coalition formation will dent Spain's
economic recovery
Table: Political Overview8
Domestic Politics II 9
Honeymoon Over For Podemos9
Although Podemos will perform relatively well at the 2015 parliamentary election, support for the party has peaked Belated attempts to
distance itself from the far-left Greek party Syriza are unlikely to ward off the challenge posed by centrist party Cuidadanos No party is
likely to win a majority in the next election by December 2015
Long-Term Political Outlook 10
Political Challenges Beyond The Recession10
Spain's ongoing economic malaise has put several structural political issues into the spotlight Challenges over the next decade will
include unemployment, demographic changes and constitutional questions
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Overly Reliant On Private Consumption For Growth14
Headline real GDP growth in Spain will outpace the broader eurozone over the coming years, as the country benefits from structural
reforms implemented in 2012 and improving external conditions Faster rates of growth will be restricted by an over-reliance on private
consumption, which will remain constrained by poor labour market conditions
Table: Economic Activity14
Balance Of Payments 16
Increasingly Stable External Position 16
Spain has unwound large external imbalances since the 2008 financial crisis and will continue posting current account surpluses over
the coming years This suggests a much improved balance of payments position, with risks associated with the country's large net
international investment liabilities largely mitigated by eurozone membership and ECB backstops
table: Balance Of Payments 16
Fiscal Policy 18
Tightening To Slow As Austerity Wanes18
Populist tax cuts, ambitious real GDP growth forecasts and growing support for anti-austerity political movements suggest Spain will
make limited progress narrowing its fiscal deficit in 2015 or 2016 Favourable financing conditions mean this is unlikely to pose any
systemic risks to the country's strengthening economic recovery
table: Fiscal Policy19
Monetary Policy 20
Positive CPI Growth On Horizon20
Recovering domestic demand and declining supply-side base effects will pull Spain out of deflation in H215 Growing inflationary
pressures will dampen the household spending outlook going into 2016, made worse by rising political risks in Spain
Table: Monetary Policy20
Business Monitor International Ltd wwwbusinessmonitorcom 3
Contents
Banking Sector 21
Outlook Improving Amidst Weak Profits21
We see reduced systemic risks to the Spanish banking sector in 2015 and 2016, with sector stability much improved by healthy capital
accumulation over the past few years Nevertheless, weak bank lending and low interest rates mean that banks will remain overly reliant
on reducing their operating costs and loan-loss provisioning for profits
Regional Exchange Rate Policy 23
EUR: The Worst Is Almost Over23
Euro weakness versus the US dollar will persist to the end of 2015 and into 2016 However, we have raised our 2016 and 2017
forecasts slightly to account for the improving eurozone economic outlook and the consequent potential for European Central Bank
(ECB) tightening to be brought forward
Table: BMI Eurozone Currency Forecasts23
Regional Banking Sector 24
Household Lending Recovery To Continue24
Eurozone bank lending will accelerate in the next few quarters following years of contraction Household lending should continue to pick
up, as private sector balance sheets have improved and the European Central Bank has provided significant stimulus amid low interest
rates and substantial asset purchases
Chapter 3: 10-Year Forecast 27
The Spanish Economy To 2024 27
Slow, But Steady Growth Ahead27
In order to correct for the massive imbalances built up during Spain's decade-long economic boom, the economy is now coming
through a period of rebalancing that will result in a lower long-run growth potential While an internal devaluation will help restore some
of Spain's competitiveness over the long run, the process will prove long and painful Ultimately, compared with the levels of growth
enjoyed since euro adoption, the next 10 years will show only modest economic growth rates
table: Long-Term Macroeconomic Forecasts27
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: Developed States - Labour Market Risk30
TABLE: Developed States - Logistics Risk33
TABLE: Developed States - Crime And Security Risk36
TABLE: Developed States - Trade And Investment Risk38
Chapter 5: Key Sectors 41
Pharmaceuticals and Healthcare 41
table: Pharmaceutical Sales, Historical Data And Forecasts42
table: Healthcare Expenditure Trends, Historical Data And Forecasts 43
Telecommunications 44
table: Telecoms Sector - Historical Data and Forecasts 45
Other Key Sectors 51
table: Oil and Gas Sector Key Indicators51
table: Defence and Security Sector Key Indicators51
table: Infrastructure Sector Key Indicators51
table: Food and Drink Sector Key Indicators52
table: Autos Sector Key Indicators52
Table: Freight Key Indicators52
Chapter 6: BMI Global Macro Outlook 53
Global Outlook 53
Assessing The Aftermath Of Three Key Events53
Table: Global Assumptions53
Table: Developed States, Real GDP GrowtH, %54
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 54
Table: Emerging Markets, Real GDP Growth, %55

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