Spain: Economy still manages grow in Q4 2020 despite pandemic's resurgence
January 29, 2021
The economy lost significant momentum in the final quarter of 2020, due to the reimposition of restrictions amid a second wave of Covid-19 infections. According to a preliminary reading, GDP grew 0.4% on a seasonally-adjusted quarter-on-quarter basis in Q4, markedly below the unprecedented 16.4% surge logged in Q3. That said, the result beat market analysts’ expectations of a contraction. Nevertheless, the recovery remains far from complete as output was still down 9.1% in year-on-year terms (Q3 2020: -9.0% yoy). For the year as a whole, the economy shrank a staggering 11.0%, nearly tripling the contraction experienced during the 2009 global financial crisis (2019: +2.0%).
A deterioration in both domestic and external demand drove the fourth quarter’s slowdown. Consumer spending rose 2.5% on a quarterly basis in Q4, significantly below the 20.8% jump logged in Q3 as renewed restrictions led to a scaling back in business activity and household purchases. Moreover, fixed investment declined 3.1% quarter-on-quarter as residential and capital goods investment retreated (Q3: +21.7% s.a. qoq). Meanwhile, government spending gained traction again, growing a robust 4.0% from the prior quarter (Q3: +1.2% s.a. qoq).
The external sector also experienced a setback. Exports of goods and services dipped 1.4% (Q3: +29.9% s.a. qoq) as rising infections across Europe triggered the reintroduction of containment measures and sapped demand in turn, with the vital tourism industry continuing to suffer. Imports, meanwhile, were up barely 0.4% in quarterly terms (Q3: +27.0% s.a. qoq). Taken together, net trade weighed on the headline reading, after making a positive contribution in the prior quarter.
Commenting on the fourth quarter’s outturn, Edoardo Campanella, economist at Unicredit, highlighted:
“Although these flash estimates are potentially subject to sizable revisions in normal times and even more in the current environment, Spain’s GDP performance at the end of 2020 is certainly remarkable. This partly reflects the resilience and the dynamism that the Spanish economy has displayed over the last few years, when it consistently outpaced the eurozone. But it also reflects the adoption of relatively mild restrictions during the fall that left substantial freedom of movement to Spanish consumers – particularly when compared to some of their European peers.”
The INE will release the second GDP estimate on 31 March.
Author: Javier Colato, Economist