After an already strong Q4, Spanish GDP growth in Q1 2015 proved stronger than previously anticipated (0.7% qoq vs. 0.5%), mostly resulting from better-than-expected investment (and to a lesser extent consumption) growth. On the contrary, exports have remained weak - net exports being a drag on growth despite the weaker euro.
Looking ahead, some of the leading indicators seem to point to a slight moderation in growth for Q2. However, given the income tax cuts (for households and corporate) and the real disposable income increase (due to increase employment and negative inflation), both consumption and business investment are likely to remain strong.
However, in H2 2015 and in 2016, domestic demand will face a more difficult environment: political uncertainty, the already low saving ratio combined with the further need to de-leverage and the expected increase in inflation - albeit limited.
"We expect growth to slow down to 1.7% in 2016 and to hover around 1.5% in the 2017-19." - said Societe Generale in a report
