Spain: Second estimate confirms GDP climbed back to pre-crisis level in Q2
August 24, 2017
The Spanish economy accelerated at its fastest pace in almost two years in the second quarter, with GDP growing 0.9% compared to the previous quarter on a seasonally-adjusted basis, according to comprehensive data released by the National Statistics Office (INE) on 24 August. The figure, which was unchanged from a first estimate released in late July, marked the strongest reading since Q3 2015. It came in slightly above the 0.8% increase recorded in the first quarter and was driven by growth across all components, with private consumption and exports contributing the most.
The domestic sector continued to pull its weight in the second quarter. Private consumption accelerated from an over two-year low of 0.4% in Q1 to a 0.7% expansion in Q2, as households shrugged off concerns of a pick-up in inflation, and the labor market continued to post strong gains throughout the April to June period. The largest gains in employment were seen in the construction sector, which is booming once again as a result of households’ higher demand for real estate assets. Improving dynamics in the sector also saw growth in construction-related capital expenditure steady at a two-year high. Overall fixed investment, however, decelerated from 2.1% in Q1 to 0.8% in Q2 as investment in machinery and equipment took a hit following Q1’s brilliant performance. Meanwhile, government consumption continued to plod along at a 0.2% expansion (Q1: +0.8% seasonally-adjusted quarter-on-quarter) as budget execution levels remained subdued in the quarter.
The external side of the economy also fared particularly well this quarter. The upcycle in global trade has underpinned the rebound in exports this year which, along with upbeat business sentiment, is spurring investment and employment growth. Despite the strong base effect generated by the rebound observed at the outset of the year, exports managed to grow 0.7% in the second quarter, which was, however, below the 3.0% expansion recorded in the previous quarter. Imports swung from a 3.1% expansion in the first quarter to a 0.2% contraction in the second quarter, due to the Q1 base effect and more stable prices in the oil and gas markets. All in all, the net contribution of trade to overall growth improved from plus 0.5 percentage points in the first quarter to plus 1.1 percentage points in the second quarter.
The results in the second quarter underpin the health of the Spanish economy, which continues to fire on all cylinders. The momentum observed in the labor market is showing no signs of faltering, which is expected to keep the economy well afloat as knock-on effects benefit investment, exports and consumption. On top of a well-performing economy, the government also remains on track to meet its fiscal goals this year as per the European Commission requirements. Spain was also deemed creditworthy by Fitch Ratings, which lifted its sovereign rating outlook to positive while maintaining its rating steady at BBB+.
Author: David Ampudia, Economist