Fitch Upgrades Spanish Outlook As Recovery Progress Is “Tremendous”

1/07/2014 – Expansion

The credit rating agency Fitch has peeped back into its outlook grade given to Spain for 2014 and 2015 on seeing the “much more rapid growth than predicted” in terms of recovery of the country´s economy that still remains “fragile”. For the two years mentioned above, Fitch raised the forecasts to 1.2% and 1.5% respectively.

In March, the risk estimation company rated the increase of Spain´s Gross Domestic Product (GDP) at 0.7% for 2014 and 1.2% for the following year. Likewise, in the June edition, Fitch claims the Spanish economy will improve 1.5% in 2016.

“Spain stands out in the peripheral Euro Zone as the most vividly recovering country where the unemployment rate dimishes progressively”, explains the agency.

In this context, Fitch points out that in the first quarter of 2014 Spain grew above the European average, by 0.4% quarter-on-quarter. The advance is mostly due to the increase in consumer spending, confidence and job market opportunities which will support a slight climb in the future.

However, the rating firm also draws attention to the 0.6% decline in investment volume in Q1, after two quarters of rise, and the 0.4% depreciation in export. Both phenomena constitute evidence to the “recovery weakness”.

Fitch foresees the investment to go up in the next quarters, bolstered both by national and foreign equity and better lending conditions.

Moreover, the company reckons the exportation will play an important role for growth throught 2014, triggering a minor rise in importation.

When it comes to the job market, in April the unemployment rate kept shrinking and halted at 25.1%, compared with the 25.4% in January and the 26.9% in Q1 2013.

Therefore, Fitch upgraded its outlook for unemployment for both 2014 (from 25.5% to 25%) and 2015 (from 24.5% to 24%). Its first calculation for 2016 sets the rate at 22.5%.

On inflation, the agency decreased the prediction to 0.2% in 2014 and to 0.5% in 2015, while in March it claimed 0.7% and 1% respectively. According to the firm, in 2016 the indicator will post 1%. Thus, it adds the low inflation and high unemployment will dig a “deep hole” in production, despite the increase in the GDP.


Original article: Expansión

Translation: AURA REE