Spain: Domestic demand is the main growth driver

Spain has already released its Q2 GDP growth number at an impressive 1.0% qoq. The details were not published but domestic demand was the main (or only) growth driver. Of that, two-thirds came from private consumption and the reminder from non-residential investment. Strong consumption growth resulted from the improvement in real disposable income due to low oil prices, the decline in mortgage rates, tax cuts and the labour market rebound. Non-residential investment has been boosted by easier financial conditions, improved final demand prospects, corporate tax cuts and also past reforms which allowed a reduction in the barriers to entrepreneurship. 

"We expect Spanish growth to ease in H2 but to remain strong, at 0.7% qoq in Q3 and 0.5% in Q4, in line with the recent stabilisation at still-high levels of the leading indicators. On top of that, as both corporate and household indebtedness remain close to their pre-crisis levels, the de-leveraging process is not over, capping the potential for further strong consumption and investment growth." says Societe Generale.

With the Catalonian regional elections in September and the national elections in the late-autumn or winter, risks of political stalemate, uncertainty and lack of reform are elevated, weighing on businesses' hiring and investment decisions over the coming months. Real GDP growth should reach 3% this year and 2% next year.