Spain almost doubled the economic growth of the eurozone in the second quarter

This rate of growth was only surpassed by the Netherlands (2.6%), Romania (2.1%) and Sweden (1.4%), thanks to the positive performance of household demand. Private consumption increased by 3.6% in the second quarter, despite the blow caused by inflation, which in July set another record for this energy crisis, rising to 10.8%.

After the publication of the growth data for Spain by the INE, on July 29, sources from the Ministry of Economic Affairs pointed out that “the data presented show the strength of the Spanish economy in a context marked by uncertainty due to the war of Russia in Ukraine and the global economic consequences, as well as the effectiveness of the economic policy measures to reduce the effects of inflation and sustain the income of families and the productive fabric, and the positive effects of the Recovery Plan to maintain the investment dynamism.

Consumption recovery

“The most dynamic [en España] came mainly from the strong reactivation of private consumption (increase of 3.2% quarter-on-quarter) after the drop registered in the previous quarter (−2.0%), weighed down by the sixth wave of COVID, the outbreak of the war and the carrier strike. Likewise, the increase in income from tourism (+29.3%) stands out positively, which already exceeds the level of the same quarter of 2019 by 8%. The most negative aspect is the contraction in investment in machinery (−6, 9%), which has been negatively affected by the increase in uncertainty and supply problems”, observes Javier García Arenas, an economist at Caixabank Research.

“The notable growth of GDP in the second quarter constitutes support for GDP to exceed 4% in 2022 as a whole, despite the fact that the outlook for the second part of the year is being overshadowed by the rise in inflation, the energy crisis, the rises in interest rates and the worsening of confidence indicators”, he adds.

The figures offered this Wednesday by Eurostat serve to reinforce this analysis and coincide with the expectations that our country will lead economic growth at the end of the year among the large countries of the eurozone.

Forecasts that do not hide the fact that a domino recession scenario from the north to the south of the EU has gained weight after the latest economic data, due to the suffocating rise in prices month after month, the end of the era of minimum interest rates, which has been raising financing costs for companies and families; and by the general disruption and uncertainty caused by the Russian invasion of Ukraine, specifically regarding energy and industrial raw materials.

As autumn approaches, during which it is feared that the EU will suffer gas shortages and that oil will continue to soar, the probability of a contraction in activity in the coming quarters increases, although the end of the pandemic maintains the bottom of the Recovery. An economic reconstruction after the COVID shock favored by historical plans and stimuli, now continued by shock measures in response to the war and the energy crisis. This is mainly based on the explosion in demand with the end of the restrictions, the good moment in the labor market and public and private investments.

Germany is the most fragile partner

In this risk of recession and domino effect, Germany is the most fragile partner, for various reasons, such as its greater dependence on Russian gas or the more advanced cycle of its recovery from the COVID-19 crisis. Meanwhile, Spain appears as the last chip that would fall before the first full tourist season since 2019.

The latest downward revision of the European Commission’s forecasts coincide with this analysis and maintain Spain as the country, among the largest in the EU, that will grow the most in 2022 and 2023, and are similar to those of the main national institutions, such as the Government, AIReF or the Bank of Spain. However, the growth of activity below 3% in 2023 moves away from the objective of recovering the pre-COVID GDP until 2024. And these expectations do not exclude the probability of a technical recession (two consecutive quarters of GDP decline), as the that the United States is already suffering.

“Germany or Italy are expected to have growth of less than 1% next year, an annual rate that suggests the possibility of one or several quarters of recession,” says Chris Iggo, expert at Axa Investment Managers.

Spain has in this summer’s tourist season, the first with only a few death rattles from the COVID restrictions since 2019, a source of differential growth compared to the economies of northern Europe. In fact, the PMI index for the services sector for July, published at the beginning of August, continued to point to an expansion in activity, unlike in industry, despite inflation and other uncertainties.

On the contrary, AIReF’s real-time GDP evolution forecast (an algorithm that is updated with the data that is published during the quarter) currently points to a contraction of 0.2% between July and September , compared to the second quarter.

“Spain’s services sector performed positively in July, with activity expanding at a solid pace, supported by higher levels of new orders and new job creation. Despite that, it’s hard not to be a little worried about economic growth in the coming months, as a close look at the survey data revealed some issues this month,” said Paul Smith, chief economic officer at S&P Global Market Intelligence. . “As the uptick in activity related to the easing of pandemic restrictions continues to fade, businesses surveyed reported growing customer hesitancy due to rising inflation and fears of an economic downturn,” he concludes. .

The PP affects the economic situation

Economic growth, such as the demand for lower taxes and criticism of the energy saving plan, have become mantras of the main opposition party when it comes to criticizing the coalition government. In this direction, the president of the PP, Alberto Núñez Feijóo, assured in an interview in ‘El País’ that the Executive’s “economic policy” “is a failure”.

“Even the German socialists have updated the personal income tax rate with inflation.” Actually, it is not. This is a proposal from the German Finance Minister, Christian Lindner, who does not have the support of the entire German government. In fact, the Social Democratic Party (SPD), of the chancellor, Olaf Scholz, and the Greens of the vice-chancellor and economy minister, Robert Habeck, have asked for improvements in the proposal -valued at 10,000 million euros- and a greater “relief” for low income people.

“We were going to grow 7% and we are going to see if we reach 4% in 2022. Inflation was going to be 1.7% this year and we are at 10.8%. This government cuts purchasing power by 10.8%, something never seen before,” Feijóo asserted in the aforementioned interview. This forecast of 4% is the one announced by the International Monetary Fund (IMF) at the end of July. Yes, they are eight tenths less than in the previous forecast but, once again, the growth forecast for the euro zone is lower, since the IMF forecasts that it will be 2.6%.