Economic growth data released this Friday from the National Institute of Statistics (INE) show how inflation has constrained Spain’s production activity and slowed job creation. National Accounts indicate that Spain’s economy expanded by 0.2 percent in the third quarter, down sharply from the previous quarterly pace of 1.5%. Year over year, GDP rose 3.8%, well below last year’s 6.8% pace. Inflation averaged close to 9% during the first nine months, a backdrop that helps explain the slower growth. The latest figures also reveal a continued easing of inflation in October for a third straight month, reported at 7.3%. Still, the European Central Bank raised rates to 2% again this week and signaled it will keep tightening until inflation in the euro area reaches 2%. These elements lie at the core of the latest National Account data, clarifying why growth has decelerated.
Spain’s economy slowed in the third quarter and GDP grew barely 0.2 percent
Have families stopped spending?
Evidence points to a clear yes. Third-quarter National Accounts show household expenditure was 10.1% higher than a year earlier. Normally, such momentum in private consumption would propel overall growth. Yet, when inflation effects are peeled away, real private consumption rose by just 1.5%. The gap between the nominal 10.1% increase and the 1.5% real increase reflects higher prices eroding the purchasing power of households. In short, spending rose by 10.1%, while actual consumption grew only 1.5%, offering only a modest lift to growth.
Have companies stopped investing?
The pattern mirrors the household story. Investment by firms rose 9.4% in the third quarter compared with the same period a year earlier. However, after accounting for inflation, the real gain is about 2.9% on a softer growth trajectory. The underlying trend shows slowing momentum as prices climbed higher while investment kept a more restrained pace.
Is it exported less now?
Exports did show strength, with overseas sales at least 35% higher than a year ago in the third quarter. But once inflation is discounted, real exports rose by roughly 18%. This remains a robust growth signal, helping to sustain foreign demand for Spanish firms. Still, an 18% quarterly drop in the euro zone from the previous quarter and forecasts of recession in Spain’s main markets, Germany and Italy, temper long-run optimism.
What about employment, benefits and wages?
The Active Population Survey and the National Accounts indicate job creation persisted, albeit at a slower pace. Full-time equivalent employment rose 2.9% in the third quarter, adding about 540,000 jobs year over year, but this was a slowdown from 5.2% in the prior quarter. Measured by hours worked, growth was 3.3% in the third quarter, roughly in line with the second. Profits for companies increased by 11.1% year on year, while the wage bill rose 4.8%. The rise in the wage bill mainly reflects more jobs and a modest 1.7% increase in average wages per employee compared with the previous year. Unit labor costs, including social contributions, edged up 0.8% in the third quarter, well below the 3.7% rise in production prices as shown by the GDP deflator for the period. These details come from INE’s press release and the accompanying National Accounts notes, offering a nuanced view of the labor and earnings picture.
Is Spain’s economy going into recession?
Officially, a 0.2% third-quarter expansion aligns with projections that ranged near or above 4.4% for the full year. Yet the scenario painted by the Financial Authority (Airef) raises the possibility of a downturn in late 2022 and early 2023, sometimes described as a technical recession if two consecutive quarters show negative growth. Airef’s central scenario remains modest, with around 1.5% growth and roughly 0.3% employment growth projected for 2023. While the central path does not declare a recession, the euro-area context matters. ECB President Christine Lagarde acknowledged an increasing risk of recession in the euro area and noted higher unemployment from recent lows. The September ECB outlook placed growth near 0.9% for the next year in the baseline, with a plausible 0.9% decline in the adverse scenario. The overall message is that the external environment and domestic price pressures complicate the outlook, even as some indicators show resilience in private activity and exports.
Note: All figures reflect the interplay between inflation and price levels affecting real activity. Analysts highlight that some sectors show strength in certain periods, while others grapple with price-driven constraints. The data continue to be interpreted in the broader context of euro-area dynamics and ongoing monetary policy adjustments.