The Spanish economy grew 0.6% in the first quarter of 2023 and 0.5% in the fourth quarter of 2022. The Bank of Spain raised gross domestic product growth forecast to 2.3%. Moreover, the national bank does warn of signs of ‘weakening’.
Spain’s economy recovered to pre-pandemic production levels in the first quarter of 2023. This is according to national accounts data published this Friday by the National Institute of Statistics (INE). The figure from the first estimate published in late April was revised upwards by a tenth of a percentage point, Specifically, Spanish GDP grew by 0.6% in the first quarter of the year, an advance that comes on top of the 0.5% growth – also revised upwards – in the last three months of 2022.
Spanish GDP reached €352,662 million in the first quarter, 10.7% higher than in the same period of 2022 and more than €350 billion for the first time in a quarter. This is sharply higher than the €245,083 million to which output fell in the second quarter of 2020, during the depths of the health crisis.
The data published on Friday point to higher growth in the Spanish economy than previously estimated by INE, Spain’s statistics office. That had forecast a 0.5% advance in the first three months of the year. Spanish GDP’s 0.6% expansion between January and March represents an acceleration of a tenth of a percentage point from the previous quarter. That figure has also been revised upwards to 0.5%. Furthermore, these two adjustments have made it possible to recover the production level of the fourth quarter of 2019, before the pandemic.
Spain leader within EU
‘Spanish economy is the fastest-growing in the European Union, with a rate of 4.2%, four times higher than the average,’ said the government’s first vice-president and minister of economy, Nadia Calviño. Year-on-year, Spanish GDP grew 4.2% in the first quarter of the year, 0.4% higher than the INE’s original estimate and 1.1 percentage points higher than the 3.1% increase in the fourth quarter. This accelerated the growth of the Spanish economy.
Spain’s economic growth so far this year exceeds that of the other European powers. In early June, Eurostat assessed GDP growth in the first quarter of 2023 and concluded that the euro area entered a technical recession at the beginning of this year, after two consecutive quarters with a slight fall in GDP of barely 0.1%. The main reason for this technical recession is the contraction of the German economy, which accounts for 29% of eurozone GDP. However, far from the situation in Germany, Spain’s economy has grown over the past two quarters, mainly thanks to spending by foreign tourists and the fall in imports, which have cushioned the fall in domestic demand.
Exports played major role in growth
The progress in the first quarter was mainly due to exports, which rose by 5.7% compared to the previous quarter Between October and December 2022, there was still a 1% contraction. But investment also contributed to the economy’s momentum, with gross investment rising 1.8%, compared with a contraction of 3.7% in the previous quarter. Furthermore, imports rose by 2.6%. Whereas, a quarter earlier there was a decline of 4.4%.
Household consumption falls
Exports and investment thus cushioned the fall in household consumption for the second consecutive quarter. The INE confirmed on Friday that household spending fell by 1.3% between January and March. This is less than the 1.6% decline in the previous quarter. This data shows the impact of the inflationary crisis on citizens’ wallets, which are suffering from both price increases and sharp interest rate hikes. For millions of Spaniards, this means higher mortgage costs.
Government spending accounted for contributions of 1.6%. They contracted by 1.6% in the first quarter of the year – the biggest quarterly decline since the fourth quarter of 2021 – after rising by 1.8% and 2.1% in the last two quarters of 2022.
The data published by the INE this Friday also includes revisions relating to the first half of 2022. More specifically, the quarterly change in GDP was revised downwards by 0.1% in the first quarter of last year and upwards by a tenth of a percentage point in the second quarter. Between January and March 2022, the Spanish economy thus contracted by 0.5%, to grow by 2.6% between April and June. This lowered the year-on-year growth rate to 6.3% in the first quarter of 2022.
In addition, the Spanish economy also grew in terms of hours worked in the first quarter. This rose by 0.4% compared to the previous three months, when an increase of 0.1% was recorded. Year-on-year, however, the number of actual hours worked fell by 1.5%, despite the 2.3% increase in full-time jobs. In the past year, 426,000 full-time jobs were added.
Outlook for progress
According to INE data, GDP growth of 5.5% will be maintained in 2022. After this progress, all economic institutions forecast a slowdown this year. Nevertheless, the Bank of Spain on Monday revised upwards its forecast for GDP growth in 2023 to 2.3% instead of the 1.6% initially forecast. It did warn of signs of “weakening” due to interest rate hikes by the European Central Bank (ECB). The government and the OECD expect slightly lower growth of 2.1%, while the European Commission and AIReF put their forecast at 1.9%.