La sagrada familia in Spain

Spain GDP Q3 2020

Spain: Economy rebounds at fastest pace on record in Q3 amid easing of Covid-19 restrictions

The economy rebounded vigorously in the third quarter, growing at the fastest pace on record after the lifting of Covid-19 lockdown measures in June enabled the gradual return of activity. According to a preliminary reading, GDP expanded 16.7% on a quarter-on-quarter seasonally-adjusted basis in Q3, sharply contrasting the unprecedented 17.8% contraction logged in Q2 and comfortably exceeding market expectations. That said, however, output was still down 8.7% in year-on-year terms in Q3 (Q2: -21.5% yoy).

The bounce-back in activity reflected a marked improvement in both domestic and foreign demand. Consumer spending surged 20.7% on a quarterly basis (Q2: -20.4% qoqsa) as businesses reopened and households resumed their purchases. Moreover, fixed investment leaped 19.9% quarter-on-quarter on the back of recovering residential and capital goods investment (Q2: -22.1% qoqsa). Lastly, government spending picked up steam, expanding a solid 1.1% from the prior quarter (Q2: +0.3% qoqsa).

The external sector also saw improved conditions. Exports of goods and services soared 34.3% thanks to recovering demand in the EU and as the vital tourism industry started to revive (Q2: -33.4% qoqsa). Similarly, imports jumped 28.4% in quarterly terms on firming domestic demand, rebounding robustly from the 29.5% plunge recorded in Q2. Taken together, net trade contributed positively to the headline reading, after weighing on it considerably in the prior quarter.

Despite the strong showing in Q3, risks to the recovery have intensified recently amid the rising second wave of Covid-19 cases, which has led to the reinstatement of restrictions on a national level. This was highlighted by Steven Trypsteen, Spain and Portugal economist at ING, who commented:

“Survey data already indicated a weakening at the end of the third quarter, especially in the services sector, and retail sales growth moved back into negative territory in September. […] We therefore think that the post-lockdown recovery had already come to a halt at the end of the third quarter and this does not bode well for the fourth quarter. We are moving from a “Nike Swoosh” recovery to a W-shaped one.”

The INE will release the second GDP estimate on 23 December.

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