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Spanish Economy Ready to Grow, Says Eurozone Forecast

Posted on by peteradmin247

investmentinproperty The Spanish economy seems to have bottomed out and be ready to start growing,” says the latest forecast from consultants, Ernst & Young, who estimate that the Spanish economy will fall by 1.7% this year but rebound by 0.2% in 2014 and by 1.5% between 2015 and 2017. Although for this they call for continuing reforms, such as the tax system or pensions, in order to increase productivity and reduce unemployment.

According to their Eurozone Forecast (EEF), Ernst & Young list among the factors contributing to the favourable change in trend is the expansion of the term to reduce the deficit, which will help to gradually dilute the negative impact of austerity measures on domestic demand in the country.

The report also highlights Spain’s increase in competitiveness in recent years, which puts Spanish companies in a good position to take advantage of the opportunities that are expected in international trade in 2014.

In this regard, they welcomed the fact that Spanish exporters are diversifying into emerging economies, and estimated that the external sector will grow by 3.6% this year, which will boost the current account surplus.

El Economista reported that, despite the improved outlook, Ernst & Young believes that the economy faces “significant obstacles” in the short term. Among them, the report cites the difficulty for companies operating in a market where the credit crunch is still a problem.

In fact, they predict that investment will decrease by 7.1% this year, but will increase by 0.2% in 2014 and 2.5% in 2015. In this context, unemployment will continue to grow and will reach 28.5% in the first months of next year, but will end the year at 27.6%.

Chairman of Ernst & Young, José Miguel de Andrés, emphasised the need for further progress on reforms to increase productivity, reduce unemployment and generate sustainable growth. In his opinion, not reaching these goals would waste an opportunity to improve the medium-term prospects and undermine the growing confidence, jeopardizing the current period of market calm.

The EEF report forecasts that the whole of the eurozone will fall by 0.6% this year and grow by 0.9% next year, thereafter achieving an average growth of 1.5% between 2015 and 2017. Unemployment will also continue to increase to 12.7% in the first quarter of the year.

The report’s estimations take into account the change in position of the leaders of the eurozone from fiscal austerity to so-called “fiscal credibility”. In fact, the report says that if half the planned austerity measures were eliminated, the overall GDP would grow by about 1% in 2014, with Greece and Spain being the economies to benefit most.

Ernst & Young partner, Francisco González Carrera, said: “little can be done to improve the growth of the eurozone in the short term”, and that in his view the structural reforms being implemented, particularly in the countries of the periphery, will still take time to have an impact on GDP.

The fiscal policy will remain restrictive, although Ernst & Young believes that the European Central Bank (ECB) could do more for small and medium enterprises through a more suitable monetary policy for this group. In their view, the ECB’s monetary policy is “too restrictive” for the peripheral economies, however they expect the ECB to implement measures to encourage loans to SMEs. While new measures may take time to have an impact, they think that easier and broader-based access to finance could be a significant factor in securing a recovery. The authorities also now seem ready to slow the pace of fiscal consolidation.

However, the report noted the importance that easing austerity does not distract from politically difficult supply-side reforms. So far, the weak economy has encouraged national and EU-level governments to push through much-needed structural reforms. Because of this, it is entirely possible that some eurozone countries will emerge stronger from the crisis. Those receiving financial assistance or facing market pressures have already made significant progress and extreme financing constraints have forced essential reforms in politically sensitive areas.

 

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