OREANDA-NEWS. The Spain Fitch Fundamentals Index dipped slightly to '+4' in the first quarter due to slower improvement in SME credit risk trends and a deceleration in new lending volumes, Fitch Ratings says.

The momentum on some positive trends is waning as the economic recovery continues, and some indicators are returning to normal levels. This is because the demand-led recovery is largely cyclical. We expect GDP growth to slow from 3.2% in 2015 as spare capacity in the economy is unwound.

New credit flows are still strong, despite a slowdown in the growth rate. Trends in consumer credit demand and retail mortgage loans were positive in 1Q16, although the pace of SME loan demand has dipped since end-2015, turning negative in some months. However, SME performance remains firm and we still expect SME lending to be a driver of loan growth in Spain's banking sector in 2016.

SME delinquencies have fallen yoy for seven consecutive quarters. However, a decline in the rate of improvement in 1Q16 means the SME sub-component dropped back to '+5' from '+10', and implies delinquencies may be nearing a trough.

The Spain FFI tracks changes in credit fundamentals across key sectors of the Spanish economy. Analysing the relative strength or weakness of the index or its sub-components can provide insight into whether conditions in Spain are conducive to economic growth.