Spanish economic growth likely to slow to 2.8 pct in 2017, private consumption to drive growth

Spain’s economy had positively surprised in the first quarter of this year by growing 0.8 percent sequentially, as compared with the 0.7 percent sequential growth recorded in the prior quarter. The Spanish economic growth surpassed the euro area average for the twelfth straight quarter. Despite the rapidly rising inflation, private consumption continued to be the main growth driver, underpinned by strong employment growth, stronger credit to consumers and a considerable rebound in consumer confidence.

In the March quarter, the jobless rate was at 18.8 percent, which is close to a seven-year low of 18.9 percent in the fourth quarter, albeit still more than double than that of 2007. Meanwhile, growth in employment accelerated close to its highest in over six years. From the expenditure approach, growth in investment came in the highest in three years. Net exports contributed positively and general government consumption growth recorded a positive figure after a drop in the fourth quarter of 2016.

For the whole of 2017, Spanish economic growth is likely to decelerate to 2.8 percent from last year’s 3.2 percent, though still higher than an expected 1.7 percent average for the euro area, noted Eurobank in a research report.

Private consumption is likely to continue to mainly drive the economy but decelerate as job creation is expected to alleviate and the positive impact of temporary factors that underpinned household disposable income gain in recent years, such as a drop in oil prices and lowered income tax rates for 2015 and 2016, and are slowing waning, while considerably higher headline inflation than last year would possibly dent households’ purchasing power, stated Eurobank.