Spain’s jobless rate likely dropped further in Q1, flash April headline inflation likely rebounded

Spain’s jobless rate is expected to have fallen further in the first quarter; however at a slower pace than the pace seen in earlier quarters, according to Societe Generale. Spain’s unemployment rate has declined sharply to 21% in Q4 2015 from the peak of 26.9% in 2013. But the jobless rate continues to be quite more than NAIRU in spite of the major decline.

In the third quarter of 2015, youth employment was 46.6%. Moreover, the temporary workers’ share continues to be high despite of all the measures regarding reducing the labor market duality. Moreover, temporary contracts account for most of the new job creation recorded in the past two years.

“We expect the labour market to improve further, albeit at a slower pace, to below 20% by the year-end and around 18.5% in 2017-20”, said Societe Generale.

Meanwhile, Spain’s flash headline inflation for April is expected to have rebounded to -0.8% y/y due to higher food and energy prices, noted Societe Generale. The energy component t is expected to have recovered on an annualized basis due to the monthly growth in energy prices; however, it is expected to remain negative. Meanwhile, core component is likely to decelerate as service prices are expected to weaken. Non-energy industrial goods prices are expected to have risen slightly.

“We forecast Spanish HICP to average 0.0% in 2016 and 1.6% in 2017, with the core metric to average 0.8% in 2016 and 1.1% in 2017”, added Societe Generale.