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Economic growth has been strong and balanced in 2017, and is projected to moderate but remain robust in 2018 and 2019. Domestic demand will ease, as the support provided by low oil prices and lower taxes dissipates. On the other hand, political tensions in Catalonia have increased uncertainty. Competitiveness gains will continue to support exports, even as external demand growth declines slightly. Inflation is projected to fall to 1.3% in 2018, before bouncing back somewhat in 2019.
Accommodative euro area monetary policy will continue to support growth, but the fiscal stance will be broadly neutral in the projection period, allowing the public debt ratio to decline slightly. To increase Spain's productivity growth, additional structural reforms to foster investment in innovation and increase the skills of the labour force should be prioritised.
Corporates and households have reduced their combined debt by nearly 55% of GDP since mid-2010. However, deleveraging is not complete, especially for firms in the construction sector and for low-income households. The banking system is stronger, but faces some challenges over the medium term due to low credit demand and profitability. Non-performing loans have declined markedly, but remain relatively high in a few financial institutions. To lower risks of medium-term credit supply constraints, the strengthening of bank balance sheets should be continued.
Economic Survey of Spain (survey page)