Fri. Oct 18th, 2019

The increase in investment in housing boosts the economic growth of Spain

Spain, with government in office and budgets carried over, is growing more than expected. This is confirmed by the summer forecasts of the European Commission, presented this Wednesday in Brussels. According to the report,GDP growth has been higher than expected in the first quarter of 2019, when it accelerated by 0.7%. The greater growth than expected was due to the improvement in exports, while imports contracted timidly. On the domestic side, investments in housing compensated for the weakening of consumption.

The indicators point to a slowdown for the second quarter, with an expected growth of 0.6% quarter-on-quarter. In any case, it is greater than projected in spring, insofar as consumption recovers.

As a result of higher growth than expected in the first half of the year, GDP is expected to reach 2.3% by the end of 2019, 0.2 points more than expected in the spring.

The growth is expected to relax somewhat in the third quarter of 2019 to stabilize at a rate of 0.5% quarter-on-quarter for the following quarters, more or less as expected in the spring.

The annual GDP for 2020 remains unchanged at 1.9%.

In terms of the composition of the economy, domestic demand, particularly consumption, is expected to remain the main axis of growth, with a neutral contribution from exports.

Growth forecasts of the European Commission, July 10, 2019.

Growth forecasts of the European Commission, July 10, 2019.

European Comission

In the context of trade tensions, Spanish exports and imports will tend to recover, but less than expected in the spring.

Employment growth should soften on the horizon, but continues to grow solidly, allowing declines in unemployment rates. Together with wage increases, it should allow for greater spending capacity and household savings.

Inflation reached 1.7% in 2018, and is expected to fall to 0.9% this year, mainly due to oil prices. And, from there, it is expected to grow to 1.2% in 2020, while core inflation increases -without energy or food products-.

The forecast of growth of the GDP of the euro area in 2019 remains unchanged at 1.2%, while the forecast for 2020 has been reduced slightly to 1.4%, after the more moderate pace expected for the rest of this year (spring forecast: 1.5%). The GDP forecast for the EU at 28 remains unchanged at 1.4% in 2019 and 1.6% in 2020.

The risks to the global economic outlook, says the European Commission, remain highly interconnected and are mainly negative. A prolonged economic confrontation between the US and China, together with the high uncertainty surrounding US trade policy, could prolong the current slowdown in world trade.

This could have negative repercussions for the global economy, even through interruptions in the financial markets. Tensions in the Middle East also increase the potential for significant growth in the price of oil.

Domestically, Brexit remains an important source of uncertainty. Finally, there are also significant risks in relation to the engines of short-term growth and economic momentum in the euro area.

The weakness in the manufacturing sector, if it persisted, and depressed business confidence, could spread to other sectors and damage labor market conditions, private consumption and, ultimately, growth.

In the coming quarters, economic activity in the euro area will depend on the way in which three divergences develop: the resistance of the services sector and the labor market against the weakness of the manufacturing industry; robust growth in Central and Eastern Europe, which contrasts with the slowdown in Germany and Italy; and the impact of wage increases on core inflation.

(tagsToTranslate) investments (t) housing (t) growth (t) economic (t) Spain

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