Spanish labour market improved considerably in 2014. Q4 14 data released by INE today on the main labour force survey (EPA) show that (seasonally adjusted) Spain’s unemployment rate dropped by over 2pp in 2014 to 23.7%, and employment increased by about 440k. The labour market participation rate inched up to 59.8% from 59.5%, and could be stabilising/reversing a downward trend since 2012. This bodes well for the future of the Spanish economy. 

Prices continue to print negative growth this year (HICP -1.2% y/y for 2015). We expect real wages to grow in 2015, along with disposable income. Better labour market dynamics and improving disposable income should support further growth in private consumption, which we forecast to expand this year at an average q/q rate of 0.5% (annual rate of 2.3% y/y). Real GDP growth is likely to be slightly above 2%.

The focus is likely to shift towards politics as the year advances. Consumer and investor confidence could experience some volatility as the general elections at year-end approach. Ahead of them will be municipal and regional elections in several regions in May, and the Catalonian regional election in September. Podemos, the radical left party, continues to poll strongly and is ahead of both the Partido Popular and PSOE parties. It is polling around 27-28%, according to polls released by SER and El Pais in January.