Spain: Long-term prospects for the economy are far from bright – CE
|Spain has suffered more than any other euro-zone country from the pandemic, both in terms of the health impact and the toll that it has taken on the economy. The rollout of a vaccine programme has now begun and should transform Spain’s economic prospects later this year. Yet while its recovery is still set to be faster than those of its neighbours in the near-term, structural weaknesses cloud the medium-term outlook, per Capital Economics.
Key quotes
“While 2020 was clearly disastrous for Spain’s economy, the prospects for this year are more favourable. We are still hopeful that the rollout of vaccines will allow eurozone governments to lift most of the economically-relevant virus restrictions by the end of Q2. Just as Spain has suffered the most from their imposition, it also stands to benefit substantially from their lifting.”
“The difficulties experienced this year have highlighted three major underlying weaknesses that will hold back economic growth further ahead. First, the greater reliance of Spanish firms on temporary contracts, under which it is easier and cheaper to let workers go. Second, political divisions that are preventing necessary policy reform have been laid bare. This lack of cooperation will surely hinder efforts at policy reforms and keep bond market investors questioning the risks of buying Spanish debt. Third, the reluctance of the government to spend big to boost the economy has also been evident this year.”
“Even if economic growth is fairly rapid in the near term, the level of GDP will still be lower than in other major euro-zone economies by the end of 2022. And growth is set to slow markedly in the medium term. Once a euro-zone outperformer, we suspect that Spain’s economy will underperform as the failure to undertake necessary growth-enhancing structural reforms comes home to roost.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.