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Spain’s economy returns to growth as IMF predicts one of biggest GDP rebounds of 2022

Spain's economy rebounded into growth in the second quarter of 2021, data showed on Friday, two days after the International Monetary Fund forecasted that Spain’s GDP growth next year will be among the highest in the developed world.

Spain's economy returns to growth as IMF predicts one of biggest GDP rebounds of 2022
Photo: Gabriel BOUYS / AFP

The Spanish economy expanded by 2.8 percent from the first three months of the year despite lingering uncertainty about the Covid-19 pandemic, according to data published by the National Statistics Institute on Friday.

In the first quarter of the year the Spanish economy contracted by 0.4 percent after having plunged by 10.8 percent in 2020.

According to economists, the first quarter drop was due to the cold snap that caused havoc in Madrid as well as the tightened pandemic restrictions due to increasing Covid cases in early 2021.

But the second quarter benefitted from relaxing pandemic restrictions as infections dropped and the vaccination campaign swung into action.

Compared to the second quarter of 2020, when much of the Spanish economy was at a standstill due to pandemic lockdowns, the expansion was 20 percent.

The news follows the International Monetary Fund’s latest report on Wednesday where it raised its GDP growth forecast for Spain by 1.1 points in 2022 to 5.8 percent. 

After having suffered the greatest drop in GDP of the world’s developed nations, Spain will be together with the United States the developed economy that will recover the fastest from the coronavirus crisis, writes the IMF.

According to the report, salaries in Spain will also record the largest growth in 2022 together with those in the US, the UK and Canada.

The outlook for the third quarter of 2021 has darkened as Spain’s key tourism industry has not enjoyed a much-hoped-for rebound as the surge in the Delta variant has cooled vacation travel despite progress with vaccination campaigns.

The Spanish government still forecasts the economy will expand by 6.5 percent for the year.

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What you need to know about investing in index funds in Spain

Index funds are considered a safer and more passive way of investing for those with little financial knowledge. However, understanding what they are, the best funds available, and how they're taxed in Spain is key before investing your money.

What you need to know about investing in index funds in Spain

What are index funds?

According to a basic definition by Banco Santander, “index investment funds are collective investment undertakings whose investment policy strives to mimic a certain index.”

What does that actually mean? And what is being mimicked here? Let’s look at an example. An index fund tracking the Vanguard Global Stock Index, for example, will put together an asset portfolio that essentially mirrors, or is similar to, at least, the Vanguard portfolio, in terms of composition. 

So that means that if the Vanguard Index has any major changes in terms of portfolio makeup, the fund manager (more on the best of those in Spain below) changes your index fund to reflect that change.

Often in Spain index funds would be linked to the IBEX 35, Spain’s main stock exchange, but many people invest in regional or global funds too. Besides that, index funds basically function in the same way as other funds: the money in the fund is used to buy and sell assets to make profit.

Generally speaking, the benefits of index fund investing are their low cost, the little financial knowledge and time investment required from the investor, and their diversification. The drawbacks are the lack of downside protection when there are losses, the lack of choice in index composition, and the fact that your investments can’t ‘beat’ the market.

READ ALSO: The best high-yield savings accounts in Spain

How profitable can index funds be?

Owing to the fact that the entire point of index funds is to mimic a particular index, the way we think about profitability is slightly different than with other forms of investment.

In that sense, there’s really no such thing as a ‘good’ or ‘bad’ index fund based on its performance. How well the index fund performs is better thought of as how well it replicates the index it is supposed to be mimicking.

According to Rankia, a Spanish investment service and comparison site, index funds vary wildly in terms of returns, but compound annualised returns ranging from as low as -40 percent in the worst case examples to 55 percent profits in the best.

Obviously, how much you make in cash terms depends on the size of your original investment in the fund.

Can you invest in foreign index funds in Spain?

Yes, you can. In fact many people do, and fund managers often recommend doing so.

In Spain, the main fund managers that offer index funds include iShares, EBN Bank, Amundi, Vanguard, Pictet, Bankinter, Caixabank, BBVA, and Credit Suisse.

Which are the best index funds to invest in from Spain?

Most index funds are grouped on a regional basis, so there are several funds that mirror European markets, North American markets, the Pacific region markets, and so on, as well as broader global index funds.

According to Rankia, some of the best global index funds to invest in from Spain include:

Fidelity MSCI World Index Fund P-ACC-EUR
Total Expense Ratio (TER): 0.12 percent
3-year return: 11.73 percent

Vanguard Global Stock Index Fund EUR Acc
TER: 0.18 percent
3-year return: 11.63 percent

Amundi Index MSCI World – IE (C)
TER: 0.19 percent
3-year return: 11.51 percent

Vanguard ESG Developed World All Cap Equity
TER: 0.20 percent
3-year return: 9.29 percent

Vanguard Global Small-Cap Index Fund
TER: 0.29 percent
3-year return: 7.37 percent

Amundi Index FTSE EPRA NAREIT Global – AE (C)
TER: 0.34 percent
3-year return: 3.17 percent

How are index funds taxed in Spain?

Under the Spanish tax system, index funds are taxed as savings income as part of the IRPF (Spain’s income tax) and are included as capital gains and losses, as if they were any other type of stock market shares or investment product.

However, one of the advantages of index funds over other forms of investment is that if you sell one index fund in order to buy another, you don’t pay for the capital gains obtained because it is considered a transfer from one fund to another and is therefore exempt from taxation.

This makes it one of the best investment options if you want to get a higher return on your earnings via compound interest because you can take advantage of these capital gains to reinvest them instead of paying them in taxes.

As index funds in Spain are taxed in the same way as any other investment products that is subject to savings rates, they are taxed at the following rates:

19 percent for capital gains of less than €6,000

21 percent for capital gains between €6,000-€50,000

23 percent for capital gains in excess of €50,000

READ ALSO: Bank overdraft in Spain: What are the risks and penalties?

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