Spain: Advance Q2 GDP estimate puts growth at four-year low
July 31, 2018
The economy lost some steam in the second quarter of the year, according to an advance GDP estimate released by the National Statistical Institute (INE) on 31 July. The economy grew a seasonally-adjusted 0.6% from the previous quarter in Q2, just below the 0.7% expansion recorded in Q1 and marking the weakest performance since Q2 2014. Nevertheless, the first-quarter print showed resilience amid the sharper slowdown experienced in the Eurozone overall.
Domestic demand, underpinned by buoyant capital spending, was the engine of growth in Q2. Fixed investment grew a stellar 2.6% in quarter-on-quarter terms, considerably above the 0.8% increase recorded in Q1. The acceleration largely reflected a solid rebound in investment of machinery and equipment more than offsetting a significant moderation in construction investment. Government consumption also gained traction and grew 0.7% over the previous quarter, slightly above the 0.5% rate in Q1. In contrast, private consumption decelerated considerably in Q2, expanding a mere 0.2% quarter-on-quarter—the softest print in over four years (Q1: +0.7% quarter-on-quarter). Households’ purchasing power has been weakened by increasing inflationary pressures, largely a result of rising oil prices, which, coupled with soft wage growth, have weighed on spending.
Meanwhile, a weak external sector dragged on the headline figure. Exports of goods and services dipped 1.0% from the previous quarter, following a robust 1.3% expansion in Q1. Similarly, imports fell 0.3% quarter-on-quarter in Q2, contrasting the 1.3% rise recorded in Q1. Given exports contracted at a much steeper rate than imports, the net contribution of the external sector to growth was negative.
Looking ahead, healthy employment growth should continue underpinning private consumption this year. Strong business confidence, reflected through robust capital outlays, is also seen supporting economic activity. Nevertheless, mounting external headwinds cloud the short- and medium-term outlook. In particular, the cooling of the tourism boom of recent years and rising oil prices are likely to weigh on the external sector’s performance.
Author: Javier Colato, Economist