Spanish recovery unlikely to reduce unemployment says Capital Economics

It is doubtful whether Spain's recovery will be strong enough to reduce the unemployment rate and public debt significantly over the next two years, according to Capital Economics.

The Bank of Spain on Wednesday confirmed that Spain had exited a two-year recession largely due spike in exports.

Ben May, European economist, Capital Economics:

The rise was mainly down to developments in the external sector. A small rise in exports of 0.4%, which followed a 6% rise in Q2, coupled with a fall in imports, meant that net trade boosted quarterly GDP growth by 0.2pp.

On the optimistic side, the London-based consultancy said that the rise in exports will continue in the near term. Household spending also rose 0.1 per cent, the first rise since the first-quarter of 2012. However total domestic demand contracted by 0.3 per cent for the second quarter in a row.

Capital economics believes that tourism was an important factor in the recovery with particularly strong numbers seen in the third-quarter.

Looking to the future, domestic demand may continue to contract for some time. Unemployment had edged down however there is no sign of steady reduction. Household spending is likely to rise at a slower pace, as households try to bring down their debt levels and rebuild their savings which have taken a heavy blow in recent years.

Their note concludes that economic prospects are better than they were a year ago, particularly in the external sector but weakness in the domestic sector will hold back a recovery in the wider economy. Capital Economics is projecting a 0.5 per cent GDP contraction next year.