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Spain Country Risk Report Q2 2016

  • February 2016
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

Spain's economy will remain among the fastest growing in the eurozonein 2016, in spite of the country's ongoing political impasse.Tailwinds from cheap oil and the European Central Bank's quantitativeeasing programme will support short-term growth, but will actas a disincentive for politicians to implement the structural reformsneeded to boost long-term growth.Spain's current account surplus has peaked and will shrink over thecoming years, returning to deficit in around 2020.Already unrealistic budget deficit targets will move further out ofreach once a new government is (eventually) formed in Spain.Spain is set for a period of high political instability, as the December20 election produced no clear winner and left Spain with an extremelydivided political system.Major Forecast ChangesA further leg down in oil prices (oil dipped below USD30/bbl in January2016) has prompted us to revise up our real GDP forecasts to2.5% in 2016 and 2.2% the following year, from 2.4% and 2.1%previously.

Table Of Contents

Spain Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Economy Healthcheck: Growth And Reform Momentum Have Peaked8
Cyclical tailwinds in 2016 will mask Spain's failure to address structural impediments to long-term growth The ongoing political impasse
will lead to an even slower pace of reform
GDP By Expenditure Outlook 9
TABLE: REAL GDP FORECASTS9
TABLE: GOVERMENT EXPENDITURE FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
External Trade And Investment Outlook 11
Surpluses To Shrink On Struggling Exports11
Spain's current account surplus has peaked and will shrink over the coming years, returning to deficit in around 2020 A deteriorating
external picture will highlight the ongoing vulnerabilities with Spain's nascent economic recovery
TABLE: FIXED INVESTMENT FORECASTS11
TABLE: NET EXPORT FORECASTS11
Outlook On External Position 13
TABLE: TOP 5 GOODS EXPORTS IN 201414
TABLE: TOP 5 GOODS IMPORTS IN 201414
TABLE: CURRENT ACCOUNT15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
Fiscal Policy And Public Debt Outlook 16
Next Government To Shun Austerity16
Already unrealistic budget deficit targets will move further out of reach once a new government is (eventually) formed in Spain
Structural Fiscal Position 17
TABLE: FISCAL POSITION18
TABLE: GOVERNMENT DEBT18
TABLE: MAIN REVENUE AND EXPENDITURE SOURCES19
Regional Monetary Policy 20
ECB: Underwhelming But Still Substantial Easing20
The ECB's monetary policy easing on December 3 disappointed markets in terms of its depth and breadth However, strengthening
economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire and, in our view, the easing is still
fairly significant despite disappointment on the headline figures We continue to forecast a weaker euro in 2016
Chapter 2: 10-Year Forecast 23
The Spanish Economy To 2025 23
Slow, But Steady Growth Ahead23
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 FORECASTS 23
Chapter 3: Political Outlook 25
SWOT Analysis 25
BMI Political Risk Index 25
Domestic Politics 26
Election Implications: Fragmented Result Worst Possible Outcome26
Spain is set for a period of high political instability, as the December 20 election produced no clear winner and left Spain with an
extremely divided political system
TABLE: POLITICAL OVERVIEW26
Regional Politics 28
What Would The End Of Schengen Mean?28
While the collapse of the passportless Schengen zone would mark a major step backwards for EU integration, it would not necessarily
portend the end of the EU, and could in fact alleviate growing public concerns surrounding security and the impact of mass immigration
While cross-border trade, tourism and the establishment of 'eurodistricts' would be impeded in the short term, the continent's security
outlook would improve markedly at a period of heightened risk
Long-Term Political Outlook 31
Political Challenges Beyond The Recession31
Spain's 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 4: Operational Risk 35
SWOT Analysis 35
Operational Risk Index 35
Operational Risk 36
TABLE: DEVELOPED STATES - LABOUR MARKET RISK36
TABLE: DEVELOPED STATES - LOGISTICS RISK40
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK42
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK45
Chapter 5: BMI Global Macro Outlook 47
Global Macro Outlook 47
Downside Risks Gather Momentum47
TABLE: GLOBAL ASSUMPTIONS47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %49
TABLE: MACROECONOMIC DATA and FORECASTS51

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