Spain’s Recovery Facing Deflation Risk

After battling a financial crisis, burst property bubble and recession, Spain now appears to be on the road to recovery but some analysts have warned it could be a bumpy ride, with the dangers posed by deflation looming large.

Despite a high-profile banking crisis and property meltdown just three years ago, the Bank of Spain now expects the Spanish economy to have grown by 1.4 percent in 2014, and to expand by 2 percent in 2015, led by domestic demand.

In the third quarter of 2014, Spanish gross domestic product (GDP) grew 0.5 percent quarter-on-quarter, compared to a euro-zone-wide figure of 0.2 percent.

But despite firm growth figures, the country’s inflation data makes for somber reading. In December, the consumer price index (CPI), which tracks the prices of an everyday basket of goods, fell to -1 percent from a year earlier.

It comes after figures last week revealed that the euro zone slipped into deflation in December, boosting expectations that the European Central Bank (ECB) will initiate a full-scale government bond-buying program in the near future.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza