Bank of Spain improves economic growth outlook for 2019

Strong internal demand pushes forecast up to 2.4%, although supervisor warns about the effects of a wage hike and external factors

The Bank of Spain has improved its 2019 growth outlook for the Spanish economy, raising it to 2.4% from the 2.2% it predicted in March.

The reason for this uptick is the fact that the economy has demonstrated “greater strength than anticipated,” said Óscar Arce, the Bank of Spain’s head of research, at a news conference on Friday.

From now on the pace of growth will gradually slow down, according to the supervisor, which also warned about the risks to the job market from the minimum wage hike and from outside factors that could hurt the economy, including growing protectionism, Brexit, and doubts about the Chinese economy.

The Bank of Spain has calculated that the 22.3% minimum wage increase introduced by the government of Pedro Sánchez could result in the loss of around 125,000 jobs. Arce said that the supervisor, which has faced government criticism over this estimate, used a calculation method backed by a prestigious academic publication to arrive at the number. But Arce admitted that there is no certainty because calculations were made by extrapolating 2017 figures. “We don’t have a crystal ball,” he said.

Arce also conceded that employment figures have been better than expected, but said that the Spanish economy is affected by many other factors besides wages.

Despite a global slowdown, the Spanish economy has outperformed expectations on the back of public spending and strong internal demand. During the second half of the year, the supervisor expects slower growth due to fewer exports and the price of oil. But financing costs will shrink, supporting continued growth.

The Bank of Spain expects the current expansionary period to extend to 2021 thanks to sustained competitiveness, the private sector and a favorable monetary policy. And “in the absence of new adverse developments in the coming quarters, the export markets will recover to some degree.”

But “a high degree of global uncertainty” will eventually lead to lower household consumption and lower investment. “As a result, it is expected that after the 2.6% figure posted in 2018, GDP growth will slow down to 2.4% in 2019, 1.9% in 2020 and 1.7% in 2021.”

The supervisor also warns that even though the public deficit is shrinking thanks to economic growth, the structural deficit – corrected for fluctuations and one-off measures – will remain “at very high levels.” This week, Brussels announced it plans to take Spain out of the Excessive Deficit Procedure after a decade in the program, but warned that it will keep an eye on the evolution of its public debt and deficit levels.

Taken from elpais.es