LONDON, Jan. 9, 2017 /PRNewswire/ -- Growth in Spain will moderate over the coming years, although it will remain marginally above the eurozone average. Factors that will weigh on economic activity in the years ahead include an unstable domestic political environment, fading tailwinds of low global energy prices and inflation, as well as a weak recovery in the eurozone.
Private consumption growth, despite remaining the primary growth driver in the years ahead, is set to drop off as a number of cyclical factors fade out. Specifically, we see increasing global energy prices and inflation eroding real wages in Spain, and this will result in lower spending among households. We see Spain's services sector recording relatively robust growth over the coming years, driven in large part by the domestic tourism industry, which accounted for more than 15% of Spanish GDP in 2014. The pace of fiscal consolidation in Spain will slow over the coming years and the budget deficit will not meet the EU-mandated target of 3.0% of GDP by 2018. Although public debt will remain elevated, it poses little risk in the near term and maturing debt will be refinanced at lower interest rates and longer maturities.
Spain's current account surplus will gradually shrink over the coming years, primarily as weak growth across the eurozone weighs on external demand. Flattening productivity growth will further inhibit a stronger expansion of export market share in the coming years. The Spanish Socialist Party's decision to abstain in an investiture vote in parliament will allow the formation of a People's Party-led minority government and avoid a third election. Despite this, the resulting political situation will be relatively unstable and the government will find it increasingly difficult to pass legislation.
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