Spain’s upward growth revisions show strong resilience to rate hikes

5:54 am Friday, September 22nd, 2023

By Belén Carreño

MADRID (Reuters) -An upward revision of Spain’s quarterly economic growth so far this year and over the 2020-22 period shows the resilience of the euro zone’s fourth-largest economy to interest rate hikes and inflation, and its outperformance against peers.

The National Statistics Institute (INE) said on Friday gross domestic product grew 0.6% in January-March from the preceding quarter and 0.5% in April-June, above its original estimates of 0.5% and 0.4% respectively. It also revised second-quarter growth to 2.2% when compared to a year ago, up from 1.8%.

Looking further back, Spain’s economy picked up speed during the second half of 2021, kept momentum in early 2022 and surpassed pre-pandemic levels last year, in line with other large EU economies. Previous data had indicated that Spain was still lagging 2019 levels in early 2023.

Friday’s quarterly revisions follow a revised annual series released on Monday that lifted last year’s growth to 5.8% from 5.5% after computing final data, and made an upward review of 2021 data to growth of 6.4% from a previous 5.5%.

Higher-than-expected private consumption and a larger number of employees working full-time were the main factors behind the revisions.

“Households must have spent more thanks to the savings made. This, together with the fact of lower indebtedness of companies and families than in past cycles, has made the Spanish economy more resistant to interest rate hikes,” said Raymond Torres, chief economist at Funcas think-tank.

Spain entered the 2008 financial crisis with low public debt but very high household and corporate indebtedness, making it extremely vulnerable to monetary policy.

But while public debt has risen above 110% of GDP, private borrowing has fallen sharply, while savings rose especially during the pandemic, allowing households to cope better with price increases.

In any case, Spain has managed to contain inflation better than its peers, with levels below 3% over the summer, although higher energy prices are likely to push it higher again.

The Bank of Spain warned this week that it expects a gradual slowdown, with growth of 0.3% in the third quarter, and full-year expansion of 2.3%, which would still be much faster than the 2023 euro zone average of 0.7% predicted by the ECB.

(Reporting by Belén Carreño in Madrid and Joao Manuel Mauricio in GdanskEditing by Andrei Khalip and Peter Graff)