Spain Economic Forecast

Sequential GDP growth was roughly stable in Q2 from Q1. Falling inflation fostered a rebound in household spending, while higher housing investment fueled an acceleration in fixed investment. That said, the external sector dragged on growth. Moving to Q3, activity has likely softened amid rising interest rates, waning savings and global headwinds. Available data is downbeat: Reigniting headline and core inflation, coupled with falling manufacturing and services PMI readings, in July, bode ill for activity. In politics, a socialist was chosen as speaker by Congress in August with the support of regional parties. This suggests that the currently-ruling socialist party is likelier to form a government than the conservatives, who, as the narrow victor in July’s elections, will have a first shot at forming a government in September. If both parties fail to form a government, another election will be held in January.

Harmonized inflation rose to 2.1% in July from June’s 1.6%, while core inflation accelerated by 0.3 percentage points to 6.1%. Inflation will average significantly lower this year than in 2022, curbed by higher interest rates, cooling domestic demand and lower commodity prices. The evolution of the euro and commodity price swings are factors to watch.