Spain: Growth quickens in Q4 2019 on upbeat external sector
January 31, 2020
The economy gained some traction in the final quarter of 2019, according to an advance GDP estimate released by the National Statistics Institute (INE) on 31 January. Economic activity grew a seasonally-adjusted 0.5% from the previous quarter in Q4, up from Q3’s 0.4% expansion and beating market expectations. Despite outperforming its major Eurozone peers, the economy is slowing overall, with full-year growth coming in at 2.0%—the softest pace since 2014 (2018: +2.2%).
The pick-up was entirely driven by the external sector, contrasting the previous quarter’s turnout which was underpinned by domestic demand. Despite the subdued global trading environment, exports rose a strong 1.5% quarter-on-quarter on the back of a rebound in goods shipments (Q3: 0.0% quarter-on-quarter). Imports, on the other hand, contracted for the first time in a year, declining a marked 1.2% on a quarterly basis amid anemic demand at home (Q3: +1.8% qoq). Taken together, net trade made a sizeable contribution to overall growth, after subtracting heavily in Q3.
In contrast, flagging domestic demand weighed on the expansion. Private consumption flatlined in Q4, marking the worst result in over six years (Q3: +0.8% qoq). Capital spending, meanwhile, fared even worse, shrinking a sizeable 3.2% amid a contraction in construction and machinery and equipment investment—the sharpest pullback in nearly nine years (Q3: +1.7% qoq). More positively, public spending held pace, again growing 0.6% as in Q3.
Looking ahead, the economy is projected to lose further momentum this year, in part due to a less supportive external environment. Soft Eurozone activity; a more subdued global economy, weighed on mainly by the U.S.-China trade tensions; and a cooling tourism industry—a major contributor to growth and employment—pose key external headwinds. Sustained political uncertainty domestically also dampens the outlook.
Steven Trypsteen, Spain and Portugal economist at ING, added that:
“Even though the economy performed quite well at the end of 2019, we still expect it to slow further in 2020. We do not see much reason to expect a sharp drop in the unemployment rate - employment expectations have fallen and remain low. The effects of the Corona virus aside, the international context has improved a bit over the last couple of months. A 2020 export performance as strong as in 2019 seems unlikely”.
The INE will release the second GDP estimate on 31 March.
Author: Javier Colato, Economist