La sagrada familia in Spain

Spain GDP Q3 2023

Spain: Q3 growth cools less than expected on strong tourism

GDP growth slowed to 0.3% on a seasonally adjusted quarter-on-quarter basis in Q3, down from 0.4% in Q2 but slightly above the 0.2% expansion that markets had expected. Nonetheless, Q3’s reading marked the worst result since Q1 2022. On a year-on-year basis, economic growth moderated to 1.8% in Q3, compared to the previous period’s 2.0% increase. Q3’s reading marked the slowest expansion since Q1 2021.

Growth in private consumption improved to 1.4% in seasonally adjusted qoq terms in Q3 (Q2: +0.9% s.a. qoq), which marked the best reading since Q3 2022. A robust labor market performance was behind the acceleration in private consumption. Meanwhile, government spending growth softened to 0.6% in Q3 (Q2: +1.6% s.a. qoq), while fixed investment contracted 0.4% in Q3, marking the worst reading since Q4 2022 (Q2: +1.9% s.a. qoq). Investment activity was weighed down by a weak real estate sector, rising labor costs and a less supportive regulatory and tax framework.

On the external front, exports of goods and services contracted by 4.0% in Q3 (Q2: -3.3% s.a. qoq), marking the worst reading since Q2 2020; the contraction in imports of goods and services sharpened to 3.1% in Q3 (Q2: -2.1% s.a. qoq).

The pace of economic expansion will decelerate in the last quarter of this year and in 2024 as domestic demand is restrained by the lagged effects of monetary tightening, waning savings and a less expansionary fiscal stance. Higher-than-expected debt-servicing costs are a downside risk, while lingering political uncertainty is a factor to watch.

Commenting on the outlook, Wouter Thierie, economist at ING, stated:

“We expect the slowdown to continue. The European Central Bank’s tightening cycle has taken a lot of oxygen out of the economy […]. In addition, household finances will come under more pressure in the coming months. […] Lastly, the contribution of the tourism sector will also be smaller next year now that the sector is roughly back to its pre-Covid level. In addition, we should not expect a strong rebound for the manufacturing sector.”

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