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December 23, 2015

The Bank of Spain has improved its forecast of GDP growth

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The Bank of Spain has improved its forecast of GDP growth

The official organ published data that GDP grew by 0.8% in the last quarter of this year and 3.2% throughout the year. Therefore, it has increased by one tenth its growth forecasts for 2015 and 2016. Future economic reforms and fiscal consolidation are, meanwhile, the main uncertainties.

According to the latest quarterly report on the Spanish economy in the newsletter published by the Bank of Spain, led by Luis María Linde, the GDP will close 2015 with an increase of 3.2%, one tenth more than experts expected in their report in September, although below the index of executive power of Spain (3.3%).

The Bank of Spain has also improved by one tenth its forecast for 2016, now the score increased to 2.8%, but in any case, this figure is lower than the official forecast of 3% in macroeconomic table of Government of Mariano Rajoy.

The quarterly growth is of 0.8%, which is in line with the growth in the third quarter and two tenths less than 1% recorded during the period April to June 2015, when was reached the highest growth since the beginning the recovery of the Spanish economy. According to the analysis of the Bank of Spain, "a modest slowdown" in the third and fourth quarters will not change the main stage of sustainable GDP growth in the coming quarters.

In any case, it should be noted that there are some downside risks of economic growth in Spain. "Within the country, the main sources of uncertainty are related to the course of economic policy." In particular, the Bank of Spain said that "maybe the depletion in the implementation of structural reforms may adversely affect the growth prospects and have a negative impact on current decisions on consumption and investment," – as stated in economic bulletin, published before the results of the general elections.

There are also concerns about fiscal policy after warnings from the European Commission to the Spanish Government to conclude as soon as possible its fiscal adjustment plan for 2016 to achieve the deficit target of 2.8% of GDP planned for 2016. In particular, the European Commission forecasts are about deficit of 4.7% and 3.6% of GDP in 2015 and 2016, respectively, while official figures are 4.2% and 2.8%. The Bank of Spain is concerned about the need to correct this deviation, which would have a "negative impact on activity in the short term." Translated into absolute figures, to correct these deviations could mean the reduction of the country's budget by nearly 10,000 million euros.

From the outside, the main risk is the possibility of a more pronounced slowdown in the emerging economies and countries that receive Spanish exports because of rising dollar interest rates.

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