GDP growth remains upbeat in Q1

GDP growth surprised markets on the upside, expanding 0.7% on a seasonally adjusted quarter-on-quarter basis in Q1 2024 and following an upwardly revised 0.7% increase in the last quarter of 2023. On a seasonally adjusted year-on-year basis, economic growth dropped to 1.3% in Q1 from the previous period's 2.3% increase.

On the external front, exports of goods and services increased 2.4% on a seasonally adjusted quarterly basis in the first quarter, which followed Q4’s 2.8% expansion. Meanwhile, growth of imports of goods and services also cooled, coming in at 1.1% in Q1 (Q4: +2.4% s.a. qoq), increasing the positive impact of net trade. Domestically, household spending growth was stable at Q4’s 0.3% in Q1, marking the joint-weakest expansion since Q4 2022. Meanwhile, government consumption shrank 1.0% in Q1, swinging from Q4’s 1.0% rise. Lastly, fixed investment expanded 2.6% in Q1 (Q4: -1.6% s.a. qoq); investment in machinery and equipment and in real estate rebounded.

The pace of economic expansion will decelerate in 2024 from 2023 as domestic demand is constrained by the lagged effects of monetary tightening, waning savings and a less expansionary fiscal stance. That said, it will remain above the Eurozone average, supported by the disbursement of EU funds and stronger external demand. Higher-than-expected debt-servicing costs are a downside risk, while heightened political uncertainty is a factor to watch.

Commenting on the outlook, EIU analysts stated: “Economic activity in Spain is set to slow but remain above the euro zone average in 2024, supported by declining inflationary pressures and strong wage growth on the back of a tight labour market. Economic growth will be held back by still-high interest rates and a subdued external environment, with US and global growth slowing considerably.”

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