Spain Trims Growth Estimate for 2017 on Investment Outlook

Updated on
  • GDP rose 0.7% in second quarter, matching Bloomberg survey
  • Caretaker PM Rajoy moves to end stalemate with no clear path

Spain’s caretaker government trimmed its growth outlook for next year, citing the prospect that investment in construction and equipment will contribute less to an economy that’s been expanding since the third quarter of 2013.

The economy will grow 2.3 percent in 2017, compared with a previous estimate of 2.4 percent, the Economy Ministry said in an e-mailed statement Friday. The government raised its growth estimate for this year to 2.9 percent from a 2.7 percent forecast given in April.

The latest update on Spain’s recovery comes after acting Prime Minister Mariano Rajoy took his most decisive action yet to end the seven-month political deadlock by accepting on Thursday King Felipe’s nomination to form a government. After two inconclusive elections, the 61-year-old said he would try to rally support across the political spectrum to form a government, and would even consider presiding over a minority administration as long as the opposition agreed to a minimum common agenda.

People in business have started to voice concern that the political limbo may start to affect economic activity.

It’s possible that Spain’s uncertain political situation is weighing on demand for corporate loans, Carlos Torres, chief executive officer of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, told analysts on a webcast Friday after publishing earnings.

“The sooner there is a government in place, the sooner we will have some activity,” Angel Garcia Altozano, director general of builder Actividades de Construccion y Servicios SA, said on a conference call for analysts. He said that the opportunities in a country that is taking steps to bring down its budget deficit may lie more in maintenance contracts than in new construction projects.

The publication of the macro-economic forecasts the government will use to prepare a 2017 budget followed the release earlier on Friday of second-quarter growth data.

Gross domestic product grew 0.7 percent in the three months through June, the Madrid-based National Statistics Office said Friday in a preliminary release. That matched the median estimate in a Bloomberg survey.

A separate release showed consumer prices fell 0.6 percent from a year earlier in July. The decision by the U.K. to leave the European Union could impact Spanish economic growth next year, Acting Economy Minister Luis de Guindos said in a news conference in Madrid Friday.

Household Consumption

While the GDP report did not detail the components of the gauge, economists see household consumption fueling the recovery thanks to a recovering jobs market and easier financing conditions. The unemployment rate dropped to 20 percent in the quarter, the lowest level in almost six years, the statistics office said Thursday.

Even so, there is no guarantee that Rajoy will submit himself to the confidence vote he needs to win in parliament to become prime minister, keeping the nation in limbo as to when and what happens next. Despite the complicated political scenario, the economy has held up well. 

Still the to-do list is expanding and Spain has yet to approve the annual spending ceiling that marks the first step in drafting next year’s budget, for which it faces a September deadline. On Thursday, Rajoy says the plan must be sent to officials in Brussels, which oversee the national budgets of member states, by Oct. 15.

— With assistance by Giovanni Salzano, and Ainhoa Goyeneche

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