May 26, 2016

After recording another period of robust growth in the final quarter of last year, the Spanish economy remained resilient in the first quarter.  According to more complete data released by the National Statistics Office (INE) on 26 May, the economy expanded 0.8% compared to the previous quarter on a seasonally-adjusted basis, which was on par with the fourth quarter’s figure.  The figure, which was in line with the preliminary estimate, came on the back of robust domestic demand.  On the other hand, the external sector was a drag on growth in Q1.  The political impasse that has characterized the country for months seems to have had little impact on the economy in the first quarter.  Spaniards are returning to polls on 26 June since the December elections failed to deliver a coalition government, however, the latest polls show that the new elections will likely not bring fundamental change. 



Spain’s growth continues to be underpinned by robust domestic demand.  Low inflation, rising consumer confidence and an improving labor market are supporting household spending.  In fact, in Q1, private consumption expanded 0.9%, which was an improvement over the 0.7% rise seen in the previous quarter.  Moreover, growth in government spending accelerated from 0.4% in Q4 to 0.8% in Q1—the fastest increase in a year.  Conversely, fixed investment decelerated and expanded 0.4% in the first quarter, which was less than half of the 1.1% increase tallied in the previous quarter. 



On the external side, demand remains subdued.  The net contribution of trade to overall growth swung from 0.9 percentage points in the fourth quarter to minus 1.0 percentage points in the first quarter.  The result was due to a steep decrease in exports, while growth in imports stalled.  In Q1, exports contracted 0.5%, which contrasted the 0.9% increase seen in Q4 and marked the first decrease in over two years.  On the other hand, imports grew only 0.3%, which matched the previous quarter’s expansion. 



The economy expanded 3.4% compared to the same quarter of last year, which marked a slight slowdown over the previous quarter.  Despite the slowdown, growth remains high compared to its historical levels. 

Spain’s economy is set to record one of the fastest growth rates in the euro zone this year.  The Central Bank expects the economy to grow 2.7% in 2016 and 2.3% in 2017.  FocusEconomics Consensus Forecast panelists expect GDP to expand 2.8% in 2016, which is up 0.1 percentage points from last month’s forecast.  In 2017, panelists expect the economy to increase 2.3%.