Recently published research from Business Monitor International, "Spain Business Forecast Report Q1 2014", is now available at Fast Market Research
Boston, MA -- (SBWIRE) -- 12/24/2013 -- Spain's economy will recover modestly in 2014, posting real GDP growth of 0.7%. Although the improving outlook will be driven by the county's strong export sector, private consumption is likely to remain weak for some time to come, with unemployment, wage growth and disposable incomes unlikely to show signs of a significant recovery.
Spain's current account surplus will expand to 1.8% of GDP in 2014, due to steady export growth, robust tourism receipts and subdued domestic demand. Nevertheless, slowly recovering import demand will ensure that the current account surplus peaks in 2015 at 2.2% of GDP.
Although the fiscal deficit will continue narrowing over the next few years, weak government revenues and a failure to rein in public spending will ensure that deficit targets are missed in 2014 and 2015.
Inflation will remain subdued in Spain in 2014, averaging just 0.6% over the course of the year. Weak demand-pull inflationary dynamics and falling house prices will be the main factors, while the potential for deflation in 2014 presents downside risks to our forecast.
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Despite the recent improvement in Spanish banks' profitability, the banking sector faces an uphill battle to contain growing bad debts and collapsing client loan growth. Deposits and loans look set to remain weak, meaning that the threat of the sector requiring further capital injections has not yet completely subsided.
Popular support for Spain's ruling People's Party government will remain low over the coming quarters, as the modest economic recov -ery fails to translate into significantly lower unemployment or larger disposable incomes. Corruption allegations are likely to continue to be levelled at the government, boosting support for traditionally smaller political parties and Catalan independence in 2014.
Major Forecast changes
Overly optimistic budget revenue growth and spending cut projections have prompted us to revise our fiscal deficit forecast to a below-consensus 6.1% of GDP in 2014 and 5.1% in 2015, from 5.6% and 4.9% previously.
We have revised up our forecast for the current account to widen to a surplus of 1.8% of GDP in 2014, from 1.4% previously, against the backdrop of strong export outlook and a slower-than-expected pickup in domestic demand.
Alongside the backdrop of subdued domestic demand and falling house prices, we have revised our forecast for inflation to average a below-consensus 0.6% in 2014, from 1.2% previously.
Key risks to outlook
Having factored a modest eurozone recovery into our growth fore -casts for Spain, a slower-than-expected recovery in the region would weigh heavily on Spanish export demand, and would destabilize the country's economic recovery.
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