GDP in Spain

Spain GDP

Economy expands more than expected in Q2

GDP rose 0.4% on a seasonally adjusted quarter-on-quarter basis in Q2, marginally down from the 0.5% increase recorded in Q1 but exceeding market expectations. Strong domestic demand more than offset a significant deterioration in external demand.

Fixed investment expanded 4.6% on a quarterly basis (Q1: +1.7% s.a. qoq), supported by a stronger increase in housing investment. Moreover, private spending rose 1.6%—following a 1.4% decline in Q2—amid declining inflation and rising employment. Additionally, government consumption increased 1.5% from the prior quarter (Q1: -1.6% s.a. qoq).

Meanwhile, the external sector weighed on the economy, as exports shrank more than imports: Exports of goods and services decreased 4.1% in seasonally adjusted quarter-on-quarter terms (Q1: +5.6% s.a. qoq), buffeted by global headwinds. In comparison, imports were down 1.0% in quarterly terms (Q1: +2.7% s.a. qoq).

In year-on-year terms, the economy grew 1.8% in Q2, down from Q1’s 4.2% expansion.

The economy should exhibit one of the fastest growth rates in the Eurozone this year, underpinned by EU funds disbursement and a recovering tourism sector. That said, sticky inflation, higher interest rates, depleted savings and diminished purchasing power should weigh on domestic demand in H2. Moreover, a weak global environment should restrain exports. Coalition-building efforts in the wake of the inconclusive results of the general election on 23 July are a factor to watch.