Spain: Solid growth maintained in Q3
October 31, 2018
Robust momentum was maintained in the third quarter of the year, according to an advance GDP estimate released by the National Statistical Institute (INE) on 31 October. The economy grew a seasonally-adjusted 0.6% from the previous quarter in Q3, matching the quarterly expansions recorded in the previous two quarters and exhibiting strength amid the Eurozone’s sharp slowdown.
Domestic demand, underpinned by healthy household spending, was the engine of growth in Q3. Private consumption gained traction in Q3 after posting the weakest gains in over four years in Q2, growing 0.6% in quarter-on-quarter terms (Q2: +0.1% quarter-on-quarter). The positive showing came despite heightened inflationary pressures eroding household purchasing power. Government consumption also gathered pace, increasing 0.8% over the previous quarter (Q2: +0.1% qoq). In contrast, fixed investment lost steam in Q3 and expanded 1.0% quarter-on-quarter, considerably below the stellar 3.5% increase recorded in Q2. The deceleration largely reflected a marked slowdown of investment in machinery and equipment, and construction.
Meanwhile, a weak external sector weighed on the headline figure. Exports of goods and services tumbled 1.8% from the previous quarter, following a soft 0.2% expansion in Q2 and marking the first quarterly contraction in five years. Similarly, imports fell 1.2% quarter-on-quarter in Q3, contrasting the 1.0% rise recorded in Q2. Given exports contracted at a much steeper rate than imports, the net contribution of the external sector to growth was negative.
Looking ahead, growth is expected to moderate next year amid waning domestic demand. Heightened global trade tensions and a slowdown in the country’s key export markets also bode ill for the external sector. In addition, the tourism boom of recent years is finally cooling, which could weigh on employment growth and consumer spending going forward. Lastly, the ECB’s end to its bond-buying program this year and the normalization of interest rates next year could increase public debt servicing costs.
Spain GDP Forecast
The Central Bank expects the economy to grow 2.2% in 2019 and 2.0% in 2020. FocusEconomics Consensus Forecast panelists project that GDP will expand 2.2% next year, which is down 0.1 percentage points from last month’s forecast. In 2020, panelists see the economy growing 1.9%.
Author: Javier Colato, Economist