Spain’s economy shows signs of a slower pace in the third quarter
Recent data from the National Institute of Statistics indicates a modest slowdown in Spain’s growth. GDP rose by 0.3 percent from July to September, following increases of 0.6 percent and 0.4 percent in the first two quarters of the year, according to the Quarterly National Accounts published by INE.
On an annual basis, GDP was up 1.8 percent compared with the third quarter of the previous year. This figure sits two tenths below the 2.0 percent pace recorded in the prior quarter. The government notes that this trajectory aligns with its forecast of about 2.4 percent growth for 2023, after a robust 5.8 percent expansion in 2022 [INE].
The third quarter showed resilience from household consumption driven by higher purchasing power and employment gains, which supported domestic demand with a 1.4 percent increase. Yet fixed investment declined by 0.8 percent on the quarter, while tourism benefited from favorable seasonal patterns in July and August, contributing to overall activity [INE].
Foreign demand components softened, with exports shrinking by 4.0 percent and imports down by 3.1 percent in the quarter. On the supply side, the manufacturing sector rose by 0.8 percent and services expanded by 0.9 percent, whereas agriculture contracted by 3.4 percent and construction fell by 0.6 percent compared with the previous quarter [INE].
Investment accelerates annual growth
Looking at year over year, household consumption advanced by 1.0 percent, though this was 1.2 percentage points lower than the prior quarter. Public administrations rose by 3.3 percent, a slight deceleration from the second quarter, while gross capital formation increased by 1.9 percent, lifting the quarterly pace by 1.1 points. In the third quarter exports were 2.4 percent lower than the same period in 2022, and imports fell by 2.9 percent [INE].
Total national demand contributed 1.7 percentage points to the annual GDP growth of 1.8 percent, with foreign demand contributing around two tenths to the overall figure in rounded terms [INE]. In real terms, excluding inflation, the economy grew 1.8 percent in the third quarter, while current-price growth stood at 8.1 percent, down from 8.7 percent in the second quarter [INE].
Accelerated employment growth
Employment continued to rise with a 2.4 percent increase in full-time equivalent jobs during the third quarter, a gain of about two percentage points from the second quarter. However, hours worked showed only a modest quarterly change of 0.1 percent, implying a roughly 2.3 percent decrease in the average working hours per employee [INE].
Interannual hours worked reflected a 1.9 percent increase, a touch higher than in the previous quarter, while full-time equivalent positions grew by about 3.5 percent, adding roughly 678,000 more full-time jobs over the year [INE]. Unit labor costs rose by 5.9 percent, and wages per employee increased by around 4.2 percent in this period [INE].
Productivity per full-time equivalent slipped by 1.6 percent in the third quarter, and productivity per hour actually worked declined by 0.1 percent year over year [INE]. The slowdown in activity aligns with the stronger pace of employment growth observed in the same period in the labor market data released by the national statistical agency [INE].
Government assessment and outlook
The government regards the 0.3 percent quarterly uptick as a notable achievement amid elevated global uncertainty and rising interest rates. Officials highlight that the current performance distinguishes Spain from other major euro area economies, with forecasts embedded in the Budget Plan that reflect this confidence [INE].
In its Budget Plan submitted to the European Commission on October 15, the government updated its 2023 growth forecast from 2.1 percent to 2.4 percent, while trimming the 2024 projection from 2.4 percent to 2.0 percent. This 2.0 percent 2024 outlook is slightly more optimistic than estimates from the International Monetary Fund, the Bank of Spain, and the European Commission, which range from 1.7 to 1.9 percent [INE].
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