IBEX 35 Index, Covid, Economic Outlook – Talking Points:
- IBEX 35 Index drops as Covid infections accelerate
- Index continues to underperform regional peers
- GDP outlook and deficit pose headwinds for economy
The Ibex 35 Index finished Wednesday’s trading session on its backfoot – down 1.67% – amid a worsening outbreak of Covid infections across the country and the broader European Union. Year to date performance for the Spanish index sits nearly -29 percent lower. This compares to the Euro Stoxx 50 index at -15 percent, and the FTSE 100 at -23 percent.
IBEX 35 Index (Daily Price Chart)
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While other EU countries are seeing rising cases, Spain continues to size an outsized rate of infections. The total case count rose above the 1 million-mark Wednesday afternoon, as Spain’s Health Ministry reported 16,973 new confirmed cases. A new round of prevention measures, including perhaps government mandated shutdowns, is likely to keep any bullish momentum from forming in the index.
Cumulative Covid-19 cases in Key European Economies
Source: Our World in Data
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Spain’s budgetary problems also pose a problem for its economy – a problem that existed before the pandemic, and now exacerbated by it with the loss of economic output. Spain does plan to use just over €70 billion in grants made available from the EU recovery fund. However, it is not clear yet if Spain will accept more funding in the form of loans from the EU. The existing budgetary concerns are possibly giving Spanish policy makers concern over adding to the deficit.
IMF Economic Outlook Projections
Source: IMF World Economic Outlook
Moreover, Spain faces one of the deepest economic contractions within the Euro Area according to the IMF’s latest economic outlook projections, with this year’s drop in GDP forecasted at -12.8%. However, the IMF expects Spain to outperform for 2021 with a projected 7.2% climb in growth versus France at 6.0%, and Germany at 4.2%. A value play could be argued at current prices, but the uncertainty given the virus and other factors in play would make that a highly uncertain gamble.
–Written by Thomas Westwater, Contributor for DailyFX.com
Contact and follow Thomas on Twitter @FxWestwater