Spain GDP Q1 2016


Economy expands robustly in Q1 despite political stalemate

The Spanish economy expanded at another robust rate in the first quarter despite the political deadlock that has characterized the country in the last four months. GDP expanded a seasonally-adjusted 0.8% in Q1 2016 over the previous quarter, according to preliminary data released by the National Statistics Office (INE) on 29 April. The expansion matched Q4’s result and FocusEconomics’ panelists expectations. The performance marked the 10th consecutive quarter of growth.

On an annual basis, GDP expanded 3.2% in the first quarter, which represented a slight deceleration over the 3.5% increase recorded in the previous quarter. Q4’s increase had marked the largest expansion since Q4 2007. The National Statistics Office (INE) will release more detailed data on 26 May.

After another round of coalition talks in which party leaders failed to strike a deal, King Felipe VI announced earlier this month that no political party has enough support to form a government, thus paving the way for Parliament to be dissolved on 3 May and for fresh elections to be held, most probably on 26 June. This has served to intensify the political deadlock that has characterized the country in the last four months. None of the parties who participated in the general elections in December last year won a majority. Moreover, since then, none of the parties has managed to form an alliance with more than the 176 seats needed for a majority. In March, Pedro Sánchez, leader of the Spanish Socialist Workers’ Party (Partido Socialista Obrero Español, PSOE) managed to seal a deal with the centrist Citizens (Ciudadanos) party. However, he failed to draw support from the anti-austerity Podemos (translated in English as “We Can”), thus remaining well short of a majority. The King’s verdict to call for new elections came days after the progressive green party, Commitment (Compromís), presented the so-called “Prado accord”. The pact combined a series of proposals, the approval of which would have allowed Sánchez to be sworn in as Prime Minister. However, once again, the parties involved in the accord failed to bridge their differences, and thus rejected the pact.

The most likely scenario is that the June elections will not bring fundamental changes since, according to recent opinion polls, support for the parties remains broadly unchanged since December. Moreover, there are escalating concerns that a continuation of the political stalemate might negatively impact the economy in the near future, in particular investment, and hinder plans to cut one of the Eurozone’s largest fiscal deficits. Geoffrey Minne, Economist at ING comments:

“The announcement of new elections by the King of Spain on Tuesday cannot be considered as a good news for economic prospect in 2016. We could therefore see the 0.8% QoQ GDP growth as a vestige of the past rather than a sign of a better outlook in the rest of the year. The slight increase of the unemployment rate in 1Q16 even though it was partly driven by seasonal effects was already a sign of a slowing recovery. The ongoing political deadlock might have a further dampening impact on the economy. The elections will probably take place in the same week as the UK referendum. The first week of the summer will therefore be crucial for Spain not only because a hung parliament could lengthen the gridlock but also because a Brexit could fuel the Catalonian independence project. Despite today’s encouraging growth numbers, risks for the economic outlook are clearly tilted to the downside.”

The political impasse could start to take a toll on the Spanish economy if the situation of a non-functioning government persists over the medium term. Amid weak global economic growth and a slight appreciation of the euro, the Central Bank recently downgraded its GDP forecast for this year from December’s projection of 3.0% projected to 2.7%. For next year, the Bank of Spain projects the economy to grow 2.3%. FocusEconomics Consensus Forecast panelists project GDP to expand 2.7% in 2016, which is unchanged from last month’s forecast. In 2017, panelists expect the economy to expand 2.4%.

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Spain GDP Chart

Spain GDP Q1 2016

Note: Quarter-on-quarter changes of seasonally-adjusted GDP and year-on-year variation in %
Source: Statistical Institute (INE) and FocusEconomics calculations.

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