Spanish economic growth likely slowed in Q1

Last year, Spanish economic growth was mainly driven by consumption and domestic demand, resulting in strong growth rate of 3.2% y/y. But the economy is likely to slowdown this year due to domestic and external headwinds, according to Societe Generale. The Spanish economy is expected to slow to 2.2%.

The economic slowdown is expected to be evident in the first quarter of this year. GDP growth in Q1 is expected to have decelerated to 0.5% q/q following a growth of 0.8% in Q4 2015, noted Societe Generale. Spain’s economic indicators such as retail sales, industrial production and new car registrations show a much weaker growth in Q1.

Hiring and investment decisions are expected to already have been impacted by the political uncertainty. Net trade is expected to be widely neutral as both imports and exports decelerate in the first quarter. The Spanish economic growth is likely to further slowdown, partially because political instability is expected to last at least until summer, added Societe Generale. The recent uncertainty shock is expected to subtract 0.4pp from private consumption growth and 0.2pp from investment growth in the next two quarters.

“The uncertainty shock, if it continues, is likely to take 2.5 years to fully feed through to the economy, bringing investment growth down by 0.5pp and consumption growth down by 1.5pp (cutting 0.8pp off GDP growth)”, said Societe Generale.