BBVA ups 2016 Spanish GDP growth forecast to 3.1% despite Brexit

Spain´s economy was set to grow more quickly than expected in 2016, before slowing notably in the following year, one of the country´s top research teams said.

BBVA Research bumped up its forecast for the rate of growth in Spain´s gross domestic product for 2016 by 0.4 percentage points to 3.1%, on average.

The continuing recovery would feed into the labour market, BBVA said.

However, some of the risks which its economists identified just three months ago had crystallised, leading the broker to cut its projection for GDP growth in 2017 by 0.4 percentage points to 2.3%.

The euro area´s fouth largest economy has been hamstrung recently by the continuing political impasse in Madrid and the fallout from Brexit despite two general elections - although the most recent reports appeared to indicate that some progress was being made - as the main left-wing and nationalist parties held out for concessions from the centre-right Popular party in exchange for their support.

According to BBVA, the referendum vote in the UK would subtract between three and four tenths of a percentage point from the Iberian country´s rate of GDP growth in 2017.

"Brexit will have a limited impact on the Spanish economy, of between 0.3 and 0.4 percentage points, but will be felt in the country´s exports, which will likely grow by 1.0 percentage points less in 2017 than was forecast three months ago.

"Nonetheless, global demand conditions are seen continuing to expand at a gradual pace and still low crude oil prices on international markets will stimulate foreign demand.

"The vulnerability of Spain´s economy continues to rise as a result of domestic political uncertainty and the shadow it casts on the government´s economic policies and the country´s commitment to meeting its targets for reducing its reducing its public deficit.

"Madrid´s new target to cut the red ink to 4.6% of GDP in 2016 is "feasible", BBVA said, but new measures will be needed in order to meet the 3.1% target set for the following year.

"Those need to be set out as quickly as possible so as to be able to evaluate the impact they will have on the economy and the government deficit in the long run," BBVA said.