Spain: Healthy growth as consumer spending supports the recovery - ING

Spain’s second quarter GDP growth has been confirmed at 0.9% QoQ, with the details showing the increasing contribution of private consumption to the recovery as job creation continues to be very strong, notably in the construction sector, explains Geoffrey Minne, Economist at ING.

Key Quotes

“Spain remains a Eurozone hotspot as the second reading of 2Q GDP growth confirmed the acceleration to 0.9% QoQ (or 3.1% YoY), from 0.8% in 1Q and 0.7% in 4Q16. Looking at the details, this result is driven by strong private consumption and a positive contribution from net exports. Private consumption increased by 0.7% QoQ, better than the growth observed in 1Q but still in line with the average observed since the start of 2015. Looking at investments, it is logical to see quarterly growth decelerating somewhat to 0.8% after the very strong result of the first quarter. Net exports increased marginally because exports are growing (+0.7% QoQ) and imports decreased marginally (-0.2%).”

“The contribution of domestic demand increased slightly from 2.3ppt to 2.4ppt while the external contribution was unchanged at 0.7ppt. The momentum the Eurozone is currently experiencing could even reinforce the latter figure by the end of the year.”

“Domestic demand remains the engine of the Spanish locomotive and in particular, private demand continues to be sustained by strong job figures. In 2Q, total employment increased 2.8% on a yearly basis, from 2.5% in 1Q and 2.7% in 4Q last year. This represents an increase of 480K jobs (full time equivalent) in one year. In particular, the construction sector is booming with a yearly growth of its employment of 5.1%, vs 1.6% in 2Q last year. The growing purchasing power of households means higher demand for real estate assets and it is logical to see the gross value added of the construction activity accelerating from 2% YoY in 2Q16 to 4.8% in 2Q17. In parallel, employment in the manufacturing sector is also surging: +2.9% YoY vs +1.9% in 2Q last year. The unemployment rate is expected to decrease quickly in the coming quarters.”

“All in all, Spanish growth is not only strong and impressive, but it also seems to be on a more sustainable footing than it was before the housing crisis. The combination of strong domestic demand and a positive contribution of external demand should lead GDP growth to top 3% for a third consecutive year. To repeat this result in 2018, several political issues will need to be resolved, notably in Catalonia.”