Spanish economic growth to decelerate in 2016, likely to slow to 2.9 pct in 2016

Spain’s economy slowed slightly in H2 2015 to 3.3% from a stronger growth rate of 3.8% in the first half of 2015. Strong consumption, domestic demand and capital expenditure are likely to continue in 2016 amidst easier credit, noted JP Morgan. The Spanish economy is expected to slow down slight, presuming high political uncertainty that is likely to remain for a brief period of time.

But the mixture of an above expected fiscal drag and a protracted political stalemate is expected to set off further slowing of economy, said JP Morgan. In 2015’s final quarter, the domestic final sales decelerated to 3.1% y/y from an average growth of 4.5% in the first three quarters. This was an early sign that the Spanish growth is levelling off. The sentiment and business surveys have also weakened in mid 2015 from above-trend growth and are in line with GDP growth rate of slightly below 3% in Q1 2016, noted JP Morgan.

Spanish economy is likely to post an average quarterly growth of 2.6% in 2016, noted JP Morgan. This indicates that the economy is expected to slow down to 2.9% in 2016 on an annual basis from 2015’s 3.2% growth. The Spanish economy is likely to smoothly shift to strong growth from a stronger growth, rather than adjusting sharply. However, the economy faces downside risks, added JP Morgan. This situation is in line with the opinion that there is low political tail risk.