BBVA Research | After slightly disappointing in the second quarter of 2019, Spanish economic growth could be around 0.5% quarter on quarter in the third quarter. Downward pressure on growth and job creation.
If this is confirmed, it would mean two successive quarters below the average quarterly growth seen in 2018. The known data consolidate the slowdown in domestic demand, while external demand recovers some traction. Lastly, they confirm a slowdown in the rate of job creation and a stabilisation of inflation.
GDP growth is below the level expected at the beginning of the quarter
The advance estimate published by National Institute of Statistics (INE) shows that the Spanish economy grew 0.5% q/q in Q219, below the forecast by BBVA Research (between 0.6% and 0.7% q/q) and the level registered in the two previous quarters (0.6% q/q on average). In addition, with about 20% of the data available for the third quarter, the model MICA-BBVA1 suggests that the quarterly GDP growth could be 0.5%, in the lower part of the range presented at the beginning of the quarter (0.5% – 0.7% q/q).
Domestic demand has slowed, weighed down by consumption and investment in machinery and equipment
According to the advance estimation by the National Quarterly Accounting (CNTR), domestic demand slowed unexpectedly and reduced its importance in GDP growth observed in Q219 (its contribution was 0.2 pp q/q compared to an average 0.5% q/q over the last year). Negative highlights include the slack household consumption (0.3% q/q) and a significant correction in investment in machinery and equipment (-2.6% q/q). In addition, a moderation was confirmed in public consumption and a light advance in non-residential construction (0.2% q/q in both cases). On the other hand, residential construction grew strongly (2.3% q/q).
Looking at the third quarter, expenditure indicators, consumer expectations and labour market registers suggest a stabilisation of private consumption around the average seen in the first half of the year. Budget execution data suggest that public consumption will continue to grow at current rates.
Overall partial indicators suggest that investment in machinery and equipment will stagnate, after the fall in the last quarter. Lastly, it is estimated that residential investmebt could continue to grow although less dynamically than observed in the first half of the year.
External demand recovers and leads quarterly GDP growth in Q219
The second quarter of 2019 saw a recovery in total exports (1.8% q/q) which comfortably exceeded imports (1.0% q/q). Net external demanded therefore contributed positively to growth (0.3 pp q/q compared to 0.0% q/q over the last year). The positive performance of overseas sales concentrated in goods (3.3% q/q), which left behind a disappointing year (-0.5 %q/q on average). Sales of services fell back (-1.4% q/q), weighed down by tourism (-2.2% q/q). Overall, available data suggests that, if this tendency is maintained, exports could remain positive in the third quarter. In any case, uncertainty over the international context is high and could affect global trade in the next few months.
The labour market shows signs of weakness
BBVA Research estimates suggest that the number of social security affiliations grew by 20,000 in July, 10,000 less than the previous month. The known data suggests that this loss of traction could be prolonged, and that Q319 could close with a variation around 0.5% q/q (0.6% q/q in Q219). Registered unemployment has increased by 5,000 in July which, if continued, would mean an increase of 0.3% in Q319, after having fallen in Q219 (-0.7% q/q). This would mean the first quarterly increase in unemployment since Q213.
Inflation increases slightly in July and will further increase in August
General inflation increased slightly last month (0.1 pp to 0.5% y/y), while underlying inflation remained stable, around 0.9% y/y. Thus the increase in general prices was 0.6 pp less than that registered in the Eurozone as a whole, and BBVA Research´s estimates indicate that the difference in the underlying component (which excludes energy and unprocessed food) has also been negative (-0.2 pp).
Looking forward, it is foreseen that inflation will stabilise around these levels, although it could accelerate temporarily in August to 0.7%. Underlying inflation will probably remain below 1.0% for the rest of the year.
