The Government does not contemplate that the economy will register a negative quarter this year, despite admitting that the GDP of the third quarter will be lower than that of the second quarter.
Madrid. (EFECOM) .- The National Institute of Statistics ( INE ) confirmed today that the Spanish economy grew for the second consecutive quarter, registering an increase of 0.2 percent between April and June compared to the previous quarter. According to the advanced data published today, the Gross Domestic Product ( GDP ) accumulates a year-on-year fall of 0.2%, although this decline has been reduced by eleven tenths compared to the one recorded the previous quarter (1.3%).
The INE stressed that, similar to the last quarters, global activity moderates its contraction, mainly as a consequence of a less negative contribution of national demand (consumption and investment).
The Government does not foresee that the Spanish economy will register a negative quarter this year, despite admitting that GDP growth during the third quarter will be lower than that registered in the second quarter.
These data confirm the estimate made last Friday by the Bank of Spain in its latest economic bulletin, which ensures that the Spanish economy has already begun the consolidation of its recovery, but warns that to maintain it is important that reforms are made concrete approved or announced structural plans and to continue the process of fiscal consolidation.
In this sense, the supervisor believes that the Government should be prepared to adopt new measures of budgetary adjustment, in case those already taken are insufficient. According to the aforementioned bulletin, the improvement in economic performance in the second quarter is explained by the fact that the drop in domestic demand has been mitigated by the pick-up in private consumption, although the external sector saw its contribution to growth reduced.
The improvement took place in a context of progressive recovery of the world economy, in which the transitory factors that led to consumption compensated for the negative effects that the instability in sovereign debt markets could have on confidence. Therefore, the supervisor warns that from now on, without these transitory factors that have advanced spending decisions (the increase in VAT in July or the end of fiscal stimuli such as aid for the purchase of automobiles), consumption could be mitigated its progress, although it expects it to continue recovering.
According to the Bank of Spain’s calculation, household consumption increased by 0.7% in the second quarter and already accumulated a 1.5% increase in the last year. As for the investment as a whole, the supervisor is not optimistic in the immediate future and believes that the credit restriction and the uncertainty about the intensity of the recovery will continue to hold back business projects. The lower contribution of the foreign sector to growth – six tenths of a percentage point compared to 1.2 points in the first quarter – attributed it to not only a strong increase in exports, but also purchases abroad. On August 26, the INE will publish the detailed data of the quarterly national accounts.
Better consumption behavior
On the other hand, the Bank of Spain specifies that, on the expenditure side, the decline in national demand weakened significantly in the second quarter, with a year-on-year decrease of 0.8%, mainly as a result of the recovery of the private consumption, while the positive contribution of net external demand was reduced to 0.6 percentage points of GDP.
Thus, while, in his opinion, the financing conditions faced by credit institutions, companies and administrations “continue to be substantially more restrictive than those existing in previous quarters”, consumer spending on households maintained the recovery trend of the previous months, estimating a quarter-on-quarter rate of 0.7% and 1.5% in year-on-year terms.
According to the Bank of Spain, the incidence of the direct aid plan for the purchase of automobiles continued to boost demand, as well as the advancement of purchases due to the rise in VAT, effective since July, have precipitated the acquisition of other durable consumer goods.
However, the issuer warns that “as these effects are exhausted, consumption could slow down its rate of progress, in a context of declining disposable income, as a result of the lower growth in wage incomes. that the evolution of consumption could be conditioned by the rise in indirect taxes at the beginning of the third quarter, although in a broader horizon a continuation in their recovery could be expected.
“The restoration of confidence and a less uncertain outlook on the prospects of the labor market, along the lines of the labor reform underway, would be fundamental ingredients of a sustained recovery in consumption,” he adds.