The Spanish economy: strong third quarter – robust outlook despite numerous unfinished tasks

The Spanish economy continues to forge ahead. The fourth largest eurozone country posted strong growth again in the third quarter of 2017. However, with an increase +0.8% quarter-on-quarter, it lost some of its momentum from the spring. Even so, the result is likely to remain one of the strongest growth rates in the entire euro area. The first details to date on the individual contributions to growth are available only in form of a projection from the Spanish central bank. These estimates have, however, proven very accurate in the past.

The data suggest that domestic demand – i.e. demand from both the private and public sector, and capital expenditure – has once again supported the strong growth. Foreign trade is also expected to make a positive contribution, even though it is likely to have been a good deal weaker than in the second quarter. However, the impact of the stronger euro exchange rate vis-a-vis other important currencies is unlikely to have had a tangible negative effect on net exports (exports less imports) yet. On the contrary, the import of goods in particular has increased in recent months as a result of stronger domestic demand.

Even so, the period of economic recovery keeps the Spanish economy’s grounds for celebration in check. There are still various unfinished economic and structural tasks where economic policy has shown less of commitment to reform in recent years. The most prominent example is the ongoing tense situation on the labour market with the second-highest unemployment rate in the entire euro area. The very one-sided economic model with an emphasis on the tourism industry or the high level of public-sector debt form an unstable foundation. The country is also experiencing a lot of unrest on the domestic policy front: the pro-secession efforts by Catalonia as the country’s strongest economic region could potentially be a source of lasting damage to the wider Spanish economy.

The first leading indicators for October – such as the EU Commission’s Economic Sentiment Indicator – suggest that the disruptive factors have had little impact to date on the period of economic recovery. On the basis of these data, the rhythm of the Spanish economic engine is therefore expected to slow down only gradually. We forecast economic growth of around three percent for 2017 as a whole, which remains significantly higher than the anticipated euro area average of roughly two percent.

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