Photo: Spain Crown Prince Felipe and Princess Letizia
Spain’s economy will grow 1 percent in 2014, JPMorgan said in a newly published report, citing recent “encouraging” results in industrial production, exports and consumer spending and confidence.
The report, issued to clients, said the country’s situation has improved sufficiently in recent months to enable it to grow at an acceptable clip this year.
JPMorgan had previously forecast an increase in Spain’s gross domestic product of 0.7 percent in 2014.
In the report, titled “Spain Is Back,” the investment bank said the economy had made “significant progress since mid-2013” and noted that GDP data for last year’s third quarter showed a strong recovery in domestic demand.
It also cited progress in the vast majority of economic sentiment indicators, particularly in the services sector.
JPMorgan said it expected 2014 to bring continued strong growth in exports, which accounted for 33 percent of Spain’s GDP in 2013, up from 17 percent of GDP in 2007. This growth, the investment bank said, will be driven by increased competiveness stemming from Spain’s internal devaluation process, especially labor-cost reductions.
It acknowledged, however, that that process has not been painless because it has been accompanied by a drop in salaries and a large increase in the number of unemployed.
The Spanish government’s latest quarterly survey of the workforce, from the July-September period, showed 5.9 million people out of work, equivalent to a jobless rate of 25.9 percent.
The report said Spain’s banks were “well capitalized” and have improved their liquidity situation, although they still must make provisions to cover bad loans and clean up their balance sheets.
But JPMorgan does not expect significant improvement in financing conditions for businesses and households this year.
Despite the lack of lending, consumer-spending data for the third quarter of last year was “encouraging” and the return of the annual Christmas bonus for public employees in 2013 (the 2012 bonus was taken away as part of an austerity drive aimed at lowering a high budget deficit) will have an economic impact equivalent to roughly 0.5 percent of GDP.
Although JPMorgan predicts that the problem of weak credit flows and high interest rates charged to companies will persist, it believes Spain’s economy has enough dynamism to grow in 2014 even without a significant improvement in financing conditions.
Spain ended a streak of nine consecutive quarters of contraction in the third quarter of 2013, posting growth of 0.1 percent.
The country’s economic woes began with the bursting of a real estate bubble and were exacerbated by the 2008-2009 global recession and the subsequent sovereign debt crisis in Europe.