Spain’s Economy the New Darling of Eurozone

Barcelona_Construction_CranesSpain is no longer Europe’s economic doormat. At least, that’s according to new projections which show Spain’s economy outperforming the Eurozone.

The staid International Monetary Fund (IMF) recently upgraded its forecast for Spain’s economic growth, while downgrading the rest of Europe. The IMF now believes Spain’s economy will expand by 1.3 percent this year and 1.7 percent in 2015, which would make it the rocket engine economy of Europe, which isn’t saying much.

After its recent downgrade, the IMF believes the Eurozone’s economy will grow a scant 0.8 percent this year and 1.3 percent in 2015.

A few days after the IMF announcement, Spain’s government released its own projections, which were equally (and not surprisingly) upbeat. The government projects 1.3 percent growth for 2014 and 2 percent growth for 2015. Perhaps most importantly, the finance ministry predicts the addition of 622,000 jobs by the end of 2015, which might cut the unemployment rate to a still jaw-dropping 22.2 percent.

For a property market looking for any sign of recovery, any sign of economic growth is big news. The state of the economy is always a leading indicator of real estate sales, even in Spain’s convoluted market.

In Spain, a stronger economy would boost the domestic market, which is still lifeless seven years after the market collapse. And improving economic indicators will directly aid Spain’s banks, which might start opening the coffers for more home loans. (And there are already indications of increased mortgage activity.)

Strong Fundamentals

The IMF says Spain’s rebound is based on sound fundamentals. “Growth in Spain has resumed, supported by external demand as well as higher domestic demand reflecting improved financial conditions and rising confidence,” the agency said in its report.

That said, it is easy to react to the projections with skepticism. Government predictions are notoriously unreliable. If job growth doesn’t live up to expectations or consumer activity slows, Spain will quickly fall back into the Euro malaise.

Even more worrisome, there is no getting around Spain’s direct ties to the fate of the overall European economy, which remains sluggish a best, with deflation a real concern. With foreign buyers playing such a key role, Spain’s property market is directly tied to the fate of Europe’s economy. Construction is still the biggest driver for jobs and any slowdown in the property market will bring a quick end to the rosy GDP predictions.

It’s not hard to see how a few hiccups can derail these positive trends.

“The weakening external environment both globally and in the Eurozone further complicates the picture for Spain and means externally led growth and investment may be hard to come by,” wrote Forbes contributor Raoul Ruparel, who remained pessimistic after attending a Madrid conference this week with Spain’s economic leadership.

But the IMF data shows that Spain has been posting small but steady increases for 12 months, a sign that growth is an actual trend. It might take another 12 months for that to translate into confidence in the property market, but it’s a starting point.

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One thought on “Spain’s Economy the New Darling of Eurozone”

  1. Stephen

    It is good news that Spain is the “darling” of something. In August Spain’s trade deficit rose to 2.7billion from a previous 1.81 billion. Government debt has reached 99% of GDP. I thought the Eurozone had set a limit of 60% of GDP but there you go, they are excellent at moving goalposts.

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