Spain Disposable Income (ann. var. %)

Disposable Income in Spain

Economy expands more than expected in Q1

GDP rose 0.5% on a seasonally adjusted quarter-on-quarter basis in Q1, up from the 0.4% increase recorded in Q4 2022 and exceeding market expectations. A strong performance of the external sector and a rebound in investment activity more than offset another significant contraction in consumer spending. In year-on-year terms, the economy grew 3.8% in Q1, up from Q4’s 2.9% expansion. That said, the economy still remains 0.2 percentage points below its pre-pandemic level.

Fixed investment expanded 1.9% on a quarterly basis (Q4: -3.7% qoq), supported by turnarounds in housing and machinery and equipment investment. On the flipside, private spending shrank 1.3%—following a 1.7% decline in Q4—amid soaring core inflation, depleted savings and worsening labor market dynamics. Additionally, government consumption decreased 1.6% from the prior quarter (Q4: +2.0% s.a. qoq).

Meanwhile, the external sector supported the economy as exports rebounded strongly: Exports of goods and services increased 5.8% in seasonally adjusted quarter-on-quarter terms (Q4: -1.0% s.a. qoq), benefiting from a strong Easter tourism season. In comparison, imports were up 3.1% in quarterly terms (Q4: -4.3% s.a. qoq).

The economy should expand at a decent pace this year, supported by EU funds disbursement and a recovering tourism sector. That said, high core inflation and a worsening labor market seem set to weigh on household spending. The electoral cycle in 2023 could translate into sustained pre-electoral government spending and further market-unfriendly policy measures, which represent downside risks to the outlook.

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

“We expect a sustained recovery [in Q2] thanks to a strong services sector and recovery – albeit much more gradual – in the manufacturing sector. […] In particular, a further upturn in the tourism sector will contribute significantly to growth rates this year. […] For the second half of this year, however, we expect headwinds from higher financing costs to weigh more heavily and slow economic activity. For all of 2023, we assume average growth of 1.5%.”