Articles
3 August 2018

Spain: Growth decelerates but economy remains dynamic

After the slowest quarterly GDP growth rate since the final quarter of 2014 in the second quarter, initial figures for the third quarter are also disappointing. This provides further evidence of a slowdown in the Spanish economy

221217-image-Spain-banner.jpg

The purchasing manager's index (PMI) for the service sector - a survey of firms regarding their views on the economy - declined sharply from 55.4 in June to 52.6 in July, the lowest level since November 2013. For the manufacturing PMI, the drop was less pronounced (from 53.4 in June to 52.9 in July), but the indicator has been on a downward trend since March 2018. All this shows further evidence of a deceleration in the economy.

Last week, preliminary figures showed that the Spanish economy expanded by 0.6% quarter on quarter (QoQ) in the second quarter of 2018, compared to 0.7% in the first quarter. Since 4Q 2014, the economy has expanded by at least 0.7% QoQ. This extraordinary run is now over. The deceleration in the second quarter was expected as PMIs declined. Retail sales were also hit and this showed up in slower household consumption growth (0.2% QoQ, compared to 0.7% in the first quarter).

On a year-on-year basis, the economy grew by 2.7% in 2Q, compared to 3.0% in the previous quarter. The contribution of domestic demand was 2.9 percentage points, 0.1 percentage points higher than the previous quarter. External demand had a negative contribution of 0.2 percentage points, compared to the +0.2 percentage point contribution previously. Given the moderate slowdown in the eurozone, however, this is not surprising.

That said, we think the Spanish economy is still in good shape. The strong labour market, for example, will continue to support consumption. Tourism also continues to support the economy, with slightly more international tourists entering the country in the first six months of the year compared to the same period last year. We nevertheless forecast that the economy will slow down a bit further in the coming quarters. Given the extraordinary performance in previous years (above 3% annual growth since 2015), this should not be viewed as a sign of trouble. For 2018 as a whole, we forecast a decent growth rate of 2.6%.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).