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SPAIN: Growing economy, but no good jobs

In 2018, the Spanish economy will continue to grow strongly at 2.6%, half a percentage point below last year's growth, but in line with that of the last two to three years. In the longer term, we expect a similar performance of the Spanish economy. GDP is anticipated to increase 2.4% in 2019". The latest edition of Spanish and International Economic & Financial Outlook (SEFO) features key insights from Funcas' Director General Carlos Ocaña on the outlook for the Spanish economy and financial sector in 2018 and beyond.

Growth which does not create good jobs

"This moderate deceleration is due, in part, to the moderation of consumption growth, reflecting both a household savings rate at historical minimums and the depletion of pent up demand after two years of strong rebound in consumption", says Carlos Ocaña. In addition, ongoing political tensions in Catalonia have dissipated somewhat after the Central Government and Constitutional Tribunal decisions, but will have a negative impact on investment in the region that Funcas does not expect to be completely offset by increased investment flows to other parts of Spain. "We estimate the net impact to be moderate in the short term, accounting for a reduction of an additional 0.2 percentage points in our 2018 forecast for Spanish overall GDP growth", adds Funcas' Director General.

Still high debts

Public debt levels are expected to continue their slow decline to 96.4% of GDP, down 1.4% of GDP from the previous year, but remain uncomfortably high. While the government has been able to take advantage of savings on interest payments under the ECB's monetary accommodation, the announcement of policy normalization will push up the cost of debt service, and, in the absence of a long-term debt reduction strategy, increase sovereign risk. After eight years of consolidation, clean-up and recapitalization, Spain's financial sector stands more resilient, with improved profitability and solvency indicators. Profitability of the Spanish sector is among the highest across the main EU economies and notably above the EU average. Also, Spanish banks have boosted their solvency relative to pre-crisis levels.
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