Spain: Disaggregated data confirm slight economic deceleration

The Spanish economy continued to fare well in Q3 amid heightened political uncertainty, despite a slight deceleration. The economy expanded 0.7% compared to the previous quarter on a seasonally-adjusted basis, according to comprehensive data released by the National Statistics Office (INE) on 24 November. The expansion was slightly below the second quarter’s 0.8% reading but was above FocusEconomics panelists’ original expectations of a 0.6% increase. The Spanish economy has remained resilient to multiple internal and external shocks, achieving 13 consecutive quarters of growth and managing to outperform most of the countries in the Euro area.

The more moderate expansion seen in the third quarter was still supported by a steady performance in the domestic sector. Household spending continued to benefit from decreasing unemployment, low interest rates and subdued consumer prices. As such, private consumption rose 0.6% in Q3 (Q2: +0.7% quarter-on-quarter). Government consumption, after a one-off drop in Q2, rose strongly as the political impasse meant no new government could implement further fiscal consolidation measures and thus curb state expenditure. Public consumption increased 1.0% in the third quarter, a noteworthy improvement from the second quarter’s 0.6% contraction. Conversely, fixed investment saw a marked slowdown from the second quarter (Q3: +0.1% qoq; Q2: +1.1% qoq). Manufacturing investors likely postponed investments until the new government was formed, as they were expecting a fresh round of structural reforms as well as a boost to the sector to follow.

Unlike the resilient dynamics observed in the domestic sector, the external side of the economy disappointed in the third quarter. The net contribution of trade to overall growth deteriorated from plus 1.7 percentage points in the second quarter—the largest contribution in almost four years—to a tepid plus 0.2 percentage points in the third quarter. Exports of non-tourism services declined for the first time in three years and tourism services decreased mildly. In Q3, exports dropped 1.3% against the previous quarter, which severely contrasted Q2’s 3.1% increase. Nonetheless, the external sector retained some of its positive contribution to growth due to an even more pronounced decrease in imports (Q3: -1.8% qoq; Q2: +2.0% qoq).

The economy expanded 3.2% compared to the same quarter of last year. The result marked a slight slowdown from the 3.4% increase logged in the previous quarter.

Resilient economic growth helped conservative Mariano Rajoy to be sworn in as Prime Minister in late October, which put an end to 10 months of political gridlock after two consecutive elections had left no clear majority in Parliament. FocusEconomics Consensus Forecast panelists project that GDP will expand 2.2% in 2017, which is unchanged from last month’s forecast. In 2018, panelists expect the economy to expand 2.1%.