Spain Economic Outlook
Sequential GDP growth was nearly stable in Q2 from Q1, as stronger domestic demand largely offset a weaker external sector. Momentum has seemingly weakened in the current quarter, restrained by tighter financing conditions and global headwinds. The manufacturing PMI moved further into contractionary terrain in July-August, while the services PMI followed suit in August in a testament to widening economic weakness. In July-August, inflation rose from June’s trough, which likely contributed to anemic retail sales growth in July. More positively, foreign tourists were more numerous in July than in pre-Covid July 2019. In politics, center-left incumbent President Sanchez appears set to reach a parliamentary majority following July’s general election, though separatist leader Puigdemont has demanded an amnesty for Catalan separatists as his price for supporting Sanchez’s government.
Harmonized inflation rose to 2.4% in August from July’s 2.1% due to higher energy prices. Meanwhile, core inflation dipped by 0.1 percentage points to 6.1%. Inflation will average notably 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.