Spain: Economy swings back to growth in Q2 amid easing restrictions
The economy swung back to expansion in the second quarter, as the lifting of restrictions amid an acceleration in the vaccine rollout supported domestic activity. According to a preliminary reading, GDP rose 2.8% on a seasonally-adjusted quarter-on-quarter basis in Q2, beating market expectations of a 2.2% increase and contrasting the 0.4% contraction recorded in the first quarter. In year-on-year terms, the economy grew 19.8% in Q2, swinging from the 4.2% drop recorded in Q1, helped by a very low base effect.
A notable improvement in domestic demand drove the second quarter’s turnaround. Private spending soared 6.6% on a quarterly basis, swinging from the 0.4% drop in Q1, as looser containment measures, strengthening consumer confidence and a sizable increase in employment led to rising household purchases. Moreover, government consumption increased 0.8% from the prior quarter (Q1: -0.1% s.a. qoq), likely due to higher spending on healthcare. On the flipside, fixed investment declined 1.5% quarter-on-quarter as investment in tangible fixed assets, housing, and machinery and equipment fell, likely due to uncertainty over the government’s economic policies (Q1: -0.8% s.a. qoq).
Meanwhile, the external sector made a negative contribution to growth due to imports growing at a sharper pace than exports. Exports of goods and services rose a timid 0.4% (Q1: -1.7% s.a. qoq) amid a still-subdued tourism industry. Imports, meanwhile, were up 2.9% in quarterly terms (Q1: -1.3% s.a. qoq), highlighting strengthening domestic demand. Taken together, net trade subtracted 2.6 percentage points from overall GDP growth.
GDP should continue to grow for the remainder of the year as consumer and capital spending, as well as foreign demand, recover amid the gradual lifting of restrictions, accumulated savings and inflows of EU funds. However, the spread of the Delta variant could hit the tourism sector, while weak public finances and potentially market-unfriendly reforms of the labor and housing rental markets cloud the outlook.
The INE will release a second GDP estimate for Q2 on 23 September.