Economy out-performs rivals
Spain's economy, like many other European countries', has slowed sharply in the past six months. However, the growth rate remains ahead of the average for the EU zone.
Economists attribute the deceleration of the economy, following a prolonged growth phase, to external factors.
Maria Guardiet, a Madrid-based economist at Banco Santander Central Hispano, told the South China Morning Post that she expects '2.8 per cent growth for this year and 2.3 per cent next year'. Santander Central Hispano is one of Spain's largest banks and a global financial services group.
The government revised its growth forecast for the year from 3.2 per cent to 3 per cent, and has forecast 2.9 per cent economic growth for next year.
Last year was the the fourth consecutive year of expansion, with 4 per cent growth recorded. Spain's growth exceeded that of the euro zone as a whole.
The Spanish economy has become internationalised over the past 15 years, expanding beyond the euro zone. Spanish corporations have been extending their activities abroad, especially into Latin America.
Declining domestic demand, the weakening US and European economies have been among the factors that have slowed Spain's economy recently.
'The slowdown was caused by lower external demand, appreciation of the euro and the negative evolution of the stock market,' Ms Guardiet said.
Year-to-date losses of the Spanish bourse, the Bolsa de Madrid, 'are rather steeper than those of the euro-zone markets,' the Ministry of Economy observed in July.
The external sector has also slowed as foreign trade declined.
'Both exports and imports have been decelerating. Exports fell because of lower external demand and imports fell due to a slowdown in internal demand,' Ms Guardiet said.
Although inflationary pressure caused some concern last year, the anxiety has eased on this front as prices headed south.
'In recent months, inflation has decreased thanks to lower oil and food prices. This process will continue next year. We forecast a 3.4 per cent yearly average for this year and 7.7 per cent next year,' Ms Guardiet said.
She said there were some risks in terms of the labour market.
'In recent years, the Spanish economy has performed very positively. Gross domestic product has grown at an average 3.6 per cent since 1995, and close to 2 million jobs have been created,' she said.
'Employment growth has been more than 4 per cent. Now the situation has changed, because of the economic slowdown, and some jobs may be lost. Spain needs to continue labour market reforms.'
Unemployment fell by 9.7 per cent year-on-year in the first quarter of this year to 13.4 per cent of the labour force, although the rate of decline has slowed.
The introduction of the euro next year, is expected to be a catalyst for greater integration into the euro zone.
'The euro will bring a lot of opportunities for Spain in terms of integration and competition. Spain has an initial advantage in relation to prices and wage levels that help the convergence process,' Ms Guardiet said.
The central Bank of Spain has noted that there are some obstacles to the integration of the financial markets and that initiatives have been launched to make further progress on this front.
Despite the difficult external environment, the Bank of Spain notes there is 'reasonable optimism' that the impact on the Spanish economy will be limited.
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SPAIN NATIONAL DAY
Kapila Bandara
