Spain Winner From Oil, Commodities Plunge?

Spain’s economy minister says his country is a winner from the plunge in oil prices and is well insulated from the Chinese slowdown that’s partly driving the decline.

In a Bloomberg Television interview in Madrid, Luis de Guindos said lower energy costs for consumers and companies are helping to drive an acceleration in Spain’s expansion this year. The economy grew 1 percent in the second quarter, more than three times the euro-area average.

“We import the majority of the commodities, especially in the case of energy,” de Guindos said in the interview in Madrid on Wednesday. “So for Spain it’s a gain-gain situation.”

The government of Prime Minister Mariano Rajoy forecasts growth of 3.3 percent this year, buoyed by lower energy costs, interest rates close to record lows and a weaker currency. The decline in oil prices alone means a saving of 10 billion euros ($11.1 billion) — that will boost disposable income for households and lower costs for companies, de Guindos said.

Spain isn’t directly affected by the lower growth in China because only 2 percent ofexports go to that country, according to the minister. Nevertheless, he’s alert to the risks of a spillover to other emerging markets and the global economy that could hurt Spain.

“The slowdown of the Chinese economy is going to have spillover effects on other emerging markets and for Spain, for instance, the exposure to Latin America is quite relevant,” de Guindos said. “That could be the detrimental part.”

While cheap fuel and money is helping to propel Spanish growth, the government has also played its part by pushing through reforms such as making labor regulations more flexible, he said. In his view, growth would be threatened if elections due later this year led to a new administration that stalled or rolled back on those. Rajoy said Thursday the vote would be held in December.

“Reversing the reforms is the main risk,” de Guindos said. “It’s a political risk.”

On the euro exchange rate, the minister said a level of about $1.15 represents “fair value.” He also noted that about 60 percent of Spain’s foreign sales go to other nations in the currency bloc and even when the euro was at $1.40, exports were growing. Bloomberg