Spain: Growth edges up in Q1 as economic momentum continues to build
May 25, 2017
The Spanish economy has started the year with a bang, dispelling fears of an abrupt slowdown in economic activity due to the fading of several tailwinds. The economy expanded 0.8% compared to the previous quarter on a seasonally adjusted basis, according to comprehensive data released by the National Statistics Office (INE) on 25 May. This was slightly above market expectations of a 0.7% increase, which would have mirrored Q4’s figure.
The domestic sector continued to pull its weight in the January to March period. Households benefited from a strengthening labor market and favorable financial conditions. However, higher inflation, coupled with meager wage growth due to the continuing existence of substantial economic slack, prompted private consumption to expand a mild 0.4% in Q1 in quarter-on-quarter terms. While this highlights the resilient dynamics observed among Spanish households, the figure still represented the worst reading in two-and-a-half years and came in well below Q4’s 0.7% increase. Government consumption fared somewhat better, swinging from a 0.2% contraction in the last quarter of 2016 to a 0.3% expansion in Q1. A much better performance was seen from fixed investment, which sped up markedly from a 0.5% increase in Q4 to a 2.0% rise in Q1—the highest reading in nearly two years—on the back of a surge in machinery and equipment investment and higher construction investment.
However, the star of this quarter’s figures was the external sector. Export growth leapt from 2.0% in Q4 to 4.0% in Q1, the best figure since Q1 2007. This was in line with a pickup in global demand, particularly among emerging markets, and showcased the improved competitiveness of Spanish exports. Import growth also accelerated from 1.8% in Q4 to 3.8% in Q1. This figure, which was the strongest since September 2009, reflects the impact of rising oil and gas prices in a country heavily reliant on energy imports. All in all, the net contribution of trade to overall growth improved from plus 0.7 percentage points in the fourth quarter of last year to plus 1.1 percentage points in the first quarter of this year.
On an annual basis, GDP rose 3.0% at the outset of the year, which mirrored the reading observed in the previous quarter. The economy’s still solid performance should ensure Spain remains one of the fastest-growing economies in the Eurozone for a third consecutive year.
Author: David Ampudia, Economist