Spain today raised its forecast for economic growth this year and next, in contrast with countries like Italy and France that are lowering their outlook.

Spain has emerged from a deep recession marked by a banking crisis, soaring unemployment and a prolonged property market slump as one of the best-performing economies in the euro zone this year, thanks in part to rising exports.

However, the Spanish government tempered expectations for a year-end upturn, as a recovery in domestic demand was offset by a slowdown elsewhere in the euro zone.

Inflation has been stubbornly low through the region, France’s economy flat-lined in the second quarter and Germany’s contracted in the period. The Spanish government also announced on Friday a cautious draft budget for next year, still tending towards austerity. It did not increase spending, even though it faces a general election in 2015.

Pensions will rise by a minimum of 0.25 per cent, but the civil service is still effectively shrinking. The cautious approach on spending comes amid warning signals about the strength of the recovery.

Spain’s new independent fiscal authority (AIReF) said in a report on the budget that “the risks derived from an international environment with slower growth in the euro area could significantly affect the Spanish economy,” though it said growth forecasts were realistic. Earlier this week, the Bank of Spain had said domestic consumption and job creation was losing steam. Spain raised the economic growth outlook for 2014 to 1.3 per cent from a previous forecast of 1.2 per cent. That was slightly less than forecast around 1.5 per cent growth by Economy Minister Luis de Guindos in July. For 2015, it is now projecting gross domestic product will grow 2 per cent, up from a previous forecast of 1.8 per cent.

Reuters