Spain: Second GDP estimate confirms four-year low growth in Q2
September 28, 2018
Growth remained steady in the second quarter of the year, according to the second GDP estimate released by the National Statistical Institute (INE) on 28 September. The economy grew a seasonally-adjusted 0.6% from the previous quarter, matching both the 0.6% expansion recorded in Q1 and the preliminary growth estimate released on 31 July. In parallel to the first-quarter reading, growth in Q2 was the lowest since Q2 2014; nevertheless, it reflected the economy’s resilience amid the sharper slowdown experienced in the Eurozone overall.
Domestic demand, particularly buoyant capital spending, drove growth in Q2. Fixed investment grew an outstanding 3.5% in quarter-on-quarter terms (previously reported: +2.6% quarter-on-quarter), considerably above the 1.1% increase recorded in Q1 and the strongest upturn in over four years. The acceleration largely reflected a stellar rebound in investment of machinery and equipment, followed by slightly stronger gains in construction investment. Meanwhile, private consumption lost considerable pace in Q2, expanding a meager 0.1% quarter-on-quarter (previously reported: +0.2% qoq; Q1: +0.9% qoq)—the weakest print in five years. Increased inflationary pressures, largely the result of rising oil prices, have eroded households’ purchasing power, which, coupled with soft wage growth, have dragged on consumer spending. Similarly, government consumption also decelerated sharply and grew a marginal 0.1% over the previous quarter (previously reported: +0.7% qoq), markedly below the 0.8% growth rate in Q1.
Meanwhile, a weak performance by the external sector weighed on the headline figure. Exports of goods and services rose 0.2% from the previous quarter (previously reported: -1.0% qoq), following a stronger 0.6% climb in Q1. Similarly, import growth slowed, advancing at a 1.0% quarter-on-quarter clip in Q2 (previously reported: -0.3% qoq), below the 1.7% rise logged in Q1. Given growth of imports outpaced that of exports, the net contribution from the external sector to growth remained negative, subtracting 0.8 percentage points from overall growth in Q2. However, this was a smaller deduction than the 1.0 percentage-point write-down recorded in Q1.
Going forward, the economy is expected to lose steam after three consecutive years of outstanding growth. Private consumption will remain the key driver of economic activity, propped up by steady employment gains. However, mounting external headwinds cloud the short- to medium-term outlook. The recent boom of the tourism industry is finally showing signs of cooling, which could drag on further job creation, services exports and overall growth. Meanwhile, the winding up of the ECB’s quantitative easing program and extremely low-interest rate environment, which have enabled cheap access to financing in recent years, poses downside risks of higher debt servicing costs.
Author: Javier Colato, Economist