The Spanish economy closed 2023 as a growth leader in the Eurozone. This trend continued during Q1 2024 (quarterly growth of 0.8% qoq, 2.5% yoy). The favourable evolution of the fiscal deficit removes the risk of Spain being subjected to an Excessive Deficit Procedure.

 

High economic growth is having positive effects on Spanish assets. Spanish 10Y spreads to Bunds have tightened strongly in recent months, to levels of 75-80 bps at the end of May. Recent volatility in the European markets has slightly affected Spanish fixed income assets, with the spread widening to 90 bps, sending the current spread vs Spanish Bonos and French OATs to 10 bps. In terms of equities, the strong overweight in the Spanish Ibex index of financials and utility sectors has become the first supporting factor in 2024. Attractive valuations, high economic growth and a dividend yield well above other Eurozone indices are the main tailwinds for the Ibex index

 

Key takeaways:

  • The Spanish economy closed 2023 as a growth leader in the Eurozone, only outperformed by much smaller countries such as Croatia and Malta. We forecast Spanish GDP growth of 2% in 2024 vs. Eurozone growth of 0.7%.
  • Political uncertainty, exemplified by the lack of fiscal budget for 2024, is still not weighing on growth. The favourable evolution of the fiscal deficit removes the risk of Spain being subjected to an Excessive Deficit Procedure.
  • The Ibex index has performed positively in 2024, exceeding 11,500 points at the end of May. The strong overweight in the Ibex index of financials and utilities, which weighed so much in 2023, has become the first support factor this year.

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