Spain GDP to Rise by 3.2%

The political clouds that darkened Spain and its markets for more than 300 days as the country languished without a government have finally parted, as Mariano Rajoy was voted in by parliament on October 29 for a second term as Spain’s conservative prime minister.

Taking the helm of a minority government, Rajoy told his deputies that he is determined not to reverse his policies in the important areas of budget, economic reforms, and the country’s EU commitments, Seeking Alpha reported.

Spain’s economy has benefited from Rajoy’s economic reforms despite the political paralysis. The structural reforms have been aimed at addressing the fragmentation in product and services markets, simplifying business creation, and improving labor and financial markets.

Significantly rising competitiveness is benefiting Spanish exports, which are now among the best-performing in the eurozone. GDP growth this year looks likely to come in at a robust 3.2% rate. That will be well above the 1.8% growth for Germany and the 1.6% growth for the eurozone.

Forecasters are expecting somewhat slower growth for the Spanish economy in 2017 as a result of the fiscal consolidation needed to meet EU requirements, but there are no signs of slowing growth in the most recent economic data.

 Strong Improvement

Indeed, Markit’s Spain Manufacturing Purchasing Managers’ Index for October signaled a stronger improvement in operating conditions in the Spanish manufacturing sector, the greatest improvement since last April, with faster rises in output and new orders.

Industry accounts for 15% of total GDP. Services, which account for 70% of GDP, have been growing even more robustly. Spain’s banking sector, which suffered from the collapse of the construction sector and housing in the latter part of the global financial crisis, has recovered following recapitalization of troubled banks.

Spain’s credit rating was raised by Standard & Poor’s to BBB in May 2014 and to BBB+ in October 2015.

The bond market welcomed the new Spanish government. Spain’s 10-year government bonds were the EU’s best-performing asset class, with its yield easing three basis points to 1.19%. Spanish stocks rallied last week when it became evident that a government was about to be formed.

However, they slipped in the first half of this week, participating in the global market selloff, reflecting growing nervousness as polls indicated a tighter presidential race in the US. This market drawback could provide an attractive entry point.