Spain: GDP growth hits highest level in almost two years
GDP growth surprised markets on the upside, picking up to 0.6% on a seasonally adjusted quarter-on-quarter basis in Q4 from an upwardly revised 0.4% in the third quarter. Q4’s reading marked the fastest growth since Q2 2022. On a seasonally adjusted year-on-year basis, economic growth edged up to 2.0% in Q4 from the previous period’s 1.9% increase.
On the external front, exports of goods and services increased 2.9% on a seasonally adjusted quarterly basis in the fourth quarter, which contrasted with Q3’s 3.7% contraction. However, imports of goods and services also bounced back, growing 2.7% in Q4 (Q3: -2.9% s.a. qoq), reducing the positive impact of net trade. Domestically, household spending growth fell to 0.3% in Q4, marking the weakest expansion since Q4 2022 (Q3: +1.2% s.a. qoq), due to slowing wage growth amid poor productivity dynamics. Government consumption growth was unchanged from Q3 at 1.4% in Q4. Meanwhile, fixed investment contracted 2.0% in Q4, marking the worst result since Q4 2022 (Q3: -0.7% s.a. qoq); investment in machinery and equipment slumped, likely due to tight financing conditions and business-unfriendly government policies.
The pace of economic expansion will decelerate in 2024 as domestic demand is hampered by the lagged effects of monetary tightening, waning savings and a less expansionary fiscal stance. Higher-than-expected debt-servicing costs are a downside risk, while lingering political uncertainty is a factor to watch.
Commenting on risks to the outlook, ING’s Wouter Thierie stated:
“There are some blinkers. Stronger economic momentum is fueling inflation. INE data published earlier this month showed that significantly more Spanish companies plan to raise prices further in the coming months. Rising container prices and supply chain problems due to tensions in the Middle East may also put upward pressure on inflation in the coming months.”