Spain Economy Grows More Than Expected in Boost for Sanchez - Financial Post

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(Bloomberg) — Spain grew more than anticipated in the final quarter of last year, indicating the euro zone’s fourth-largest economy is on track to avoid a recession even as high inflation squeezes household spending.

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Output rose 0.2%, according to data from the INE statistics agency published on Friday. That matches the pace in the previous quarter and exceeds the 0.1% median forecast of economists surveyed by Bloomberg. It puts 2022 growth at 5.5%, maintaining the previous year’s momentum.

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Socialist Prime Minister Pedro Sanchez, who is widely expected to run for re-election this year, has pumped billions of euros into the economy in an effort to tame inflation, and shield households and businesses. The pace of price increases has eased by almost half from its July peak to 5.5% as energy costs decline.

Although growth slowed sharply in the second half of 2022, it has held up more than expected only a few months ago when most polls pointed to two consecutive quarters of contraction.

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“This confirms the strength and resilience of the Spanish economy,” Sanchez wrote in a Tweet in which he defied what he called “the prophets of the apocalypse.”

Still, the higher-than-expected quarterly growth figure masks signs of weakness, according to Angel Talavera, head of European economics at Oxford Economics.

He pointed to a decline in household spending, which fell 1.8% in the fourth quarter from the previous three months, according to INE.

“The number initially is positive because it confirms that Spain will avoid a recession, but when you look at the details the data doesn’t look very good,” he said. “Most of the improvement comes from a decline in imports, which is never a good sign. I’m surprised by the decline in consumption because slowing inflation should suggest stronger spending.”

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What Bloomberg Economics Says…

“The gain in headline GDP growth masks a sharp contraction in household consumption, which was down by 1.8% on the quarter. Households are struggling to keep spending, as high inflation weighs on real incomes.”

—Ana Andrade. Click here for more

Inflationary pressures in Spain, which is the largest beneficiary of funds from the EU Recovery and Resilience Facility after Italy, are expected to keep growth subdued, with the economy likely to expand only 1.1% this year, according to the International Monetary Fund’s latest estimates.

The impact of higher prices is also starting to show in the labor market. Unemployment rose slightly to 12.8% in the last quarter of the year from 12.6% in the previous three months, with the number of people employed dropping for the first time in the fourth quarter since 2017, according to INE data released on Thursday.

Spain’s GDP report comes ahead of highly anticipated growth numbers for the entire region on Tuesday. Policymakers are hoping that an unexpectedly mild winter will allow the bloc to avoid a serious slump.

—With assistance from Ainhoa Goyeneche, Joel Rinneby, Ana Andrade (Economist) and Maeva Cousin (Economist).

(Updates with Tweet from Sanchez in fifth paragraph, economist comment starting in sixth paragraph)

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Spain Economy Grows More Than Expected in Boost for Sanchez - Financial Post
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