Growth could reach 2.9% in 2016, two tenths more than in the previous Panel
The results for the first half of the year suggest the Spanish economy has grown steadily and faster than projected. Instead of the expected net deceleration, GDP growth in the second quarter could reach 0.7%, just one tenth less than in the previous quarter.

The revision of the growth forecast was largely due to the fact that household consumption grew more strongly than expected. Public consumption has also grown slightly more than anticipated. By contrast, the forecasts for construction investment and for exports have been revised downwards. Investments in capital goods could continue to grow in line with previous forecasts. Nevertheless, the contribution of domestic demand is less positive than predicted, while external demand is making a more negative contribution than foreseen in the previous Panel.

The forecast for 2017 remains unchanged at 2.3 %
The GDP growth forecast for 2017 remains unchanged at 2.3%, which suggests a stronger slowdown than predicted. The deceleration will come from slower domestic demand, particularly consumption by households and the general government. The external sector will continue to make a slightly negative contribution.

The quarter-on-quarter growth rate for the second part of the year should be around 0.4% – one tenth less than in the previous forecasts. Next year’s quarter-on-quarter growth should stay stable at around 0.6%, with no change since the previous Panel.

Impact of Brexit
This growth profile does not fully take into account the potential impact of the United Kingdom’s departure from the European Union. Brexit could have an impact on investment, tourism and international trade.

Deceleration in industry and robust growth in services
Growth of the industrial production index has slowed sharply, reflecting the deceleration in goods exports. Industrial production fell in May to a seasonally-adjusted annual growth rate of 1%.

The indicators for the services sector suggest a more positive direction, in line with the trend in household consumption. In May, spending by tourists visiting Spain grew at an annual rate of 7.8%, suggesting that 2016 will be a good year for the hospitality sector.

Prices are dropping more slowly due to the rise in the oil price
The annual inflation rate in June dropped below its level in the preceding months to -0.8%. Fuel and electricity prices rose, pushed up by higher oil prices. The core rate remains positive, at around 1%.

The projection for 2017 remains unchanged at 1.3%. The year-on-year rate for December is forecast to be 0.7% this year and 1.2% the next (Table 3).

Positive trend in employment
According to social security affiliation figures, the rate of employment growth remained strong in the first six months of the year, at around 2.9% in annualised terms. The number of registered unemployed has also fallen rapidly.

Employment is expected to grow by 2.6% in 2016 – a tenth of a percentage point higher than in the previous Panel – while the forecast for 2017 remains 2.0%. Using the consensus estimates for GDP, employment and wage growth to deduce the implicit productivity and unit labour cost growth estimates, productivity growth of around 0.3% is expected in 2016 and 2017, while ULCs are expected to change by a moderate 0.8% in 2016 and 1.1% next year.

The current account surplus will grow in 2016
The current account of the balance of payments posted a surplus of 1.5 billion euros in the first four months of 2016, compared with a deficit of 1.9 billion euros in the same period of the previous year. This improvement was driven by the increased goods and services surplus, resulting in particular from the strong performance of the tourism industry, and the reduction in the deficit on the income and transfers account.

The government deficit will overshoot the target
The consolidated general government deficit in the first quarter came to 8.3 billion euros, 500 million euros more than the deficit in the year-earlier period. This deterioration was caused by a slowdown in tax collection combined with an increase in expenditure.

The consensus forecast for the general government deficit for 2016 remains unchanged at 4.1%, as does the forecast for 2017 at 3.2% of GDP. In both cases, these exceed the targets in the Stability Programme Update (3.6% and 2.9%).

Worsening perception of the global economy
Global economic growth has shown signs of stagnating at around 3%. The U.S. economy grew more slowly than in 2015, while growth in the euro area remained moderate. The emerging economies have cooled (China, Russia) or are in recession (Brazil). International trade has slowed, and, for the first time in recent history, is now growing at rates similar to or below that of world GDP growth. Brexit, the state of the financial sector in emerging countries, and financial market volatility have created a climate of uncertainty.

As a result, the majority opinion among panellists with regard to the current situation in the EU is that, as a factor influencing the Spanish economy, it is neutral or unfavourable. This represents a worsening from the previous Panels. The situation is expected to remain neutral or worsen over the coming months. The situation outside the EU is also mainly considered to be neutral or unfavourable, in line with the previous consensus, and is expected to remain so over the coming months.

Long-term interest rates are low
Short-term interest rates (three-month EURIBOR) remain in negative territory. As in previous Forecast Panels, interest rates are still felt to be low for the state of the Spanish economy, but they are expected to remain stable over the coming months.

In recent weeks, long-term rates (Spanish ten-year debt) have been somewhat lower than those observed in the first two months of the year. The majority opinion among panellists is that this level is very low, but that it will remain stable over the coming months.

The euro has depreciated
As a result of financial turbulence, the euro has depreciated in recent weeks to levels around 1.10 dollars. It is expected to remain stable over the coming months or to depreciate further.

Fiscal policy is expansionary
Fiscal policy is considered to be expansionary. The majority view is that the appropriate stance would be neutral. As regards monetary policy, there is still unanimity that it is expansionary, and that this is the appropriate stance.