Spain: 4Q GDP growth confirmed at 3.0% - ING

Geoffrey Minne, Economist at ING, notes that the Spanish second reading confirmed that GDP growth reached 0.7% QoQ and 3% YoY in 4Q.

Key Quotes

“On a yearly basis, it has been the seventh consecutive month above the 3% threshold and GDP growth has been positive since 4Q13. With such a report card, the Spanish government appears as one of the top of the Eurozone class.”

“Examining the details, we observe that private consumption remains the cornerstone of Spanish growth. In 4Q16, households’ consumption growth was identical as in 3Q16 (3% YoY) and kept its contribution of half of Spanish GDP growth. In February, unemployment pursued its negative trend and decreased by 0.25% MoM (and by nearly 10% YoY), suggesting that the contribution of private consumption should remain strong in 1Q17.”

“The private investment component saw significant deceleration through 2016. Whereas investment growth was at 6.4% YoY in 4Q15, it only reached 2.2% YoY in 4Q16. The lack of fresh structural reforms like the labour market reform of 2012 or the tax reform of 2015 tends to weigh on business prospects. That said, the business sector is not falling apart as industrial data seemed to rebound in November and December last year and survey data continue to point toward a strong pace over the next months. For instance the Markit PMI indices still hover around 55. The reviving of the construction sector might also come into play as the breakdown of GDP data showed a strengthening of the sector’s growth in the second half of last year (3% in 4Q16 vs  2% in 2Q16).”

“Looking ahead, it seems that the positive momentum does slow but softly. In 4Q15, GDP growth reached 3.6% YoY against 3% in 4Q16. The Spanish economy went through a difficult political year and most of the analysts expected a sharper decrease of the pace of recovery. The GDP forecasts for 2016 had been progressively revised up by the IMF from 2.0% in April 2015 to 3.2% currently, mainly on the basis of stronger than expected job creation. For 2017, the IMF foresees a GDP growth rate of 2.3% whereas we are somewhat more optimistic with a forecast of 2.5%, on the basis of growing households purchasing power and a recovering Eurozone economy.”