In this presentation we take a closer look at the Spanish economy and prospects for recovery. We see upside risks to GDP growth forecasts for the coming years as significant headwinds have eased significantly: fiscal austerity is coming to an end and financial conditions have improved a lot. Confidence is also on the rise.
The weak spot continues to be housing where there is still no sign of a bottom. Progress has been made in the banking sector where banks have been stress tested and recapitalised. However, a rising share of non-performing loans continue to constitute a risk and headwind for the banking sector.
Overall, though, we expect to see a strengthening of fundamentals in Spain over the coming years and in combination with a further hunt for yield among investors, we believe government bond spreads to Germany will tighten further over the coming year.
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