Funcas now sees smaller fall in GDP this year, stronger recovery in 2014

Funcas, the think-tank of Spain’s savings banks, on Monday said it had revised its growth forecasts to show a less pronounced contraction in the Spanish economy this year and a stronger recovery next year than it had previously predicted as a result of the strength of the export sector, lowering funding costs due to the narrowing of the risk premium and less draconian fiscal adjustments.

The think-tank now sees GDP declining 1.2 percent this year, compared with a previous estimate of a fall of 1.5 percent, while growth next year is expected to come in at 1.0 percent, compared with a previous forecast of 0.5 percent. The government is forecasting growth of only 0.5 percent for next year.

“The economy finds itself on a path of rapid stabilization that will already allow positive growth in the third quarter of the year,” Funcas said in a statement.

Spain has been in recession for the past nine quarters, although the pace of the decline in the period April-June slowed to 0.1 percent on a quarterly basis. Since then, there has been a series of indicators pointing to a recovery in activity.

Funcas also believes there will be a pick-up in consumer spending next year, albeit of a “very timid” nature as a result of falling wages and persistently high unemployment, which currently stands at 26.3 percent.

Despite the revised forecasts, Funcas believes the government will fail to meet its deficit-reduction targets of 6.5 percent of GDP for this year and 6.0 percent the following. The think-tank believes the shortfall will be 6.8 percent in 2013 and 6.5 percent in 2014. Public debt is also expected to exceed 100 percent of GDP next year.