Unexpected Drop In Consumption Slows GDP Growth To 2%

The GDP of Spain between July and September grew by 2% quarterly compared to the second quarter, according to the advance of the INE. The data is much lower than expected by the consensus of analysts who expected growth of 2.7%. In annual terms, the growth rate stands at 2.7% compared to 17.5% in the previous period. Consumption surprises with quarterly falls. The growth has been maintained thanks to the impulse of the investment of the companies.

Negative surprise for the Spanish economy. The recovery continues but at a slower rate than expected, and with worrisome symptoms. Consumption, which should be the main lever of recovery, nor is it that it has slowed down, has fallen compared to the second quarter. It contracted by 0.3% between July and September, in contrast to the 3.5% increase experienced in the second quarter.

While household consumption fell by 0.5%, compared to the rise of 4.7% in the previous quarter, while public spending moderated its quarterly growth eight tenths, from 0.9% in the second quarter to 0.1 % In the third. Domestic demand barely grew 0.2%.

Against prognosis, GDP growth in the summer months was driven mainly by investment, which increased by 1.3%, compared to the 2.2% quarterly decline in the second quarter.

The contribution of national demand to year-on-year GDP growth is 1.5 points, 15.8 points lower than in the second quarter. For its part, external demand presents a contribution of 1.2 points, one more than in the previous quarter. When the contribution of the two variables is close to reaching the point of equilibrium, it is not usually good news for the Spanish economy. Historically, when external demand provides a positive impulse, it is usually in recessive periods as the internal engine of demand contracts.

Experts anticipate a slowdown in the economy, but not in consumption

Few experts anticipated a drop of such magnitude in consumption, although they were already considering a slowdown in the recovery. The quarterly GDP data has been bad. The Bank of Spain anticipated that the economy would grow at a quarterly rate of 2.7%. And that taking into account that the cut of the INE for the second quarter favored the comparison. Without this adjustment, the increase in GDP would have been much weaker in quarterly terms. The growth estimate went from 2.8% quarterly to 1.1% between April and June.

The economists of the Bank of Spain anticipated that “economic activity would have maintained a high degree of dynamism”, wrote the economists of the institution in the last economic bulletin, without considering the decline in consumption.

This component of GDP was to be stimulated by the summer season. Despite the fact that the Delta variant was already in the country during the period, no restriction was adopted that would affect economic activity. “The continuation of the process of relaxation of the restrictions was hardly altered by the rebound in the incidence of the pandemic observed until the end of July, given that, as has been pointed out, its health consequences were less serious than in previous waves of the disease thanks to advances in vaccination. ”

The last two quarters of GDP for the year as a whole will be a drag. Already before today’s data, a cascade of downward revisions had been unleashed by the analysis houses of the Spanish economy. The governor of the Bank of Spain, Pablo Hernández de Cos, announced last Monday that they will make ” a significant downward revision ” of their forecasts for economic growth in Spain for this year. “A reduction of such a high magnitude implies, mechanically (…) a substantial reduction in the average GDP growth rate for 2021 and, to a lesser extent, also that of 2022,” he explained in Congress. Current forecasts from the Bank of Spain project GDP growth of 6.3% in 2021, which would decline slightly to 5.9% in 2022.

The Fundación de las Cajas de Ahorro (Funcas) also cut the growth forecasts for the Spanish Gross Domestic Product (GDP) for 2021, from 6.3% to 5.1%, but has raised its estimates for 2022, from 5.8% to 6%. Other entities, as well as the General Council of Economists, Caixabank Research or BBVA Research, which in recent weeks have announced the reduction of their growth forecasts not only for 2021, but also for next year.

The macro picture of the Government jumps through the air
Today’s figures make it even more difficult for the government’s forecasts to be met . The Executive of Pedro Sánchez has kept his economic forecasts intact to prepare the General State Budgets, which include a GDP growth of 6.5% for this year and an acceleration of up to 7% in 2022. And it represents a delay in the recovery of precovid levels. If there are no new adjustments by the INE, on December 23 it offers the definitive data, the GDP is still at more than 6% so that the economy returns to the same size as before the pandemic hit the economy.

But the big problem for the economy is not a lower growth than expected, but where the Spanish economy is going through right now. It is at this time that the supply crisis and energy prices are having a particularly virulent impact on the European economy. Yesterday the ECB already anticipated a loss of dynamism in the European economy .

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