Spanish stocks and related country-specific exchange traded fund have been outperforming other core Eurozone markets as the economy picks up at its fastest clip in six years over the second quarter. However, growth could begin to slow.
The iShares MSCI Spain Capped ETF (NYSEArca: EWP) is up 8.1% year-to-date and has increased 44.7% over the past year.
The Bank of Spain announced that the country’s gross domestic product likely expanded 0.5% in the second quarter, up from 0.4% in the first quarter, reports David Roman for the Wall Street Journal. The WSJ calculates that the economy grew an annualized pace of 2% in the second quarter.
The central bank calculates that the economy could grow 1.3% in 2014 and 2% in 2015, up from earlier projections of 1.2% and 1.7%, respectively, reports Alen Mattich for the Wall Street Journal.
Economists argue that the elevated level of growth will make Spain the best or one of the best economic performers in the Eurozone for the quarter as reforms and a rebound effect helped lift the economy.
In contrast, Germany’s central bank said GDP stalled int he second quarter due to geopolitical concerns and a weakening construction sector while France’s central bank stated that the French economy grew 0.2% in the second quarter.
Year-to-date, the iShares MSCI Germany ETF (NYSEArca: EWG) is down 2.4% and iShares MSCI France ETF (NYSEArca: EWQ) is up 1.4%.
However, some warn that the current level of growth may not be sustainable.
“Given sky-high unemployment, the risk of deflation and the fact that public and private-sector deleveraging has further to run, a recovery led by domestic spending seems unsustainable,” Jennifer McKeown, an economist at Capital Economics, said in the WSJ article. “While Spain is set to be one of the euro-zone’s best performers this year, with GDP rising by 1% or a bit more, the recovery could yet prove to be short-lived.”
Additionally, while Spain moved to a current account surplus last year, the improved trade performance has been reversing. Spain’s international competitiveness could be diminishing as well.
“The danger thus is that many of the hard won gains of the crisis years are unwound during recovery,” according to Edward Hugh, an independent Spain-based economist.
For more information on Spain, visit our Spain category.
Max Chen contributed to this article.