Spain’s economic growth likely decelerated in Q3, HICP inflation to have accelerated in October

The Spanish economic growth is likely to have slowed in the third quarter. According to a Societe Generale research note, the GDP growth is expected to have decelerated to 0.5 percent in the September quarter, after expanding 0.8 percent for four quarters in a row.

But domestic demand is expected to have stayed strong, with consumption expanding 0.8 percent quarter-over-quarter. Investment is likely to have grown 0.4 percent sequentially following a robust stimulus in the second quarter. Also, net exports are anticipated to have weighed slightly on the economic growth as exports decelerated more than imports in the third quarter. But the upside risks exist for the below-consensus forecasts, said Societe Generale.

The Spanish economy, in the future, is expected to keep on decelerating moderately; however, it is likely to still outperform the remainder of the euro area. Consumption is expected to slow down, thanks to the less negative inflation and therefore falling real disposable income, whereas business investment might have been impacted negatively by the political uncertainty.

Meanwhile, the HICP inflation in the country is expected to keep on rebounding and increase another three ticks to 0.3 percent year-on-year in October, added Societe Generale. Energy base effects and a small monthly rise would continue to mainly drive the headline inflation higher.

Having falling markedly in September, food prices are expected to have rebounded, albeit slightly. Core inflation, on the other hand, is expected to have stayed stable for the third consecutive month. Looking ahead, energy base effect is expected to mainly drive Spain’s HICP inflation that is expected to continue improving at a rapid pace and exceed 1 percent year-on-year at the start of 2017, according to Societe Generale.