The improved business climate points to a risk of an upwards revision in our current estimate of contraction in Spain’s GDP in Q1 2023. The composite PMI topped the 50-point threshold in January at 51.6, five months after slipping below this level. This rebound can be attributed to services (52.7), while further contraction was seen in manufacturing activity (48.4). While manufacturing production increased by 0.8% m/m in December and 2.8% in 2022, it has only just closed the gap relative to 2019.
Spain: economic indicatorsSpanish consumer confidence has also improved with less bleak inflation prospects, although this does not necessarily indicate an upturn in consumer spending. Intentions to buy consumer durables are more or less at the same level as during the lockdowns in 2020. Furthermore, as a result of the inflation shock, the household savings rate – which was 5.8% in Q3 2022 – has fallen rapidly from the peaks reached during the lockdowns, and is now well below the average for the last 20 years at 8.9%. This kind of decline has not been seen in France or Germany, for example.
Inflation accelerated again in January from 5.7% y/y to 5.9% y/y, despite more significant deflation in energy prices. Underlying inflation recorded a further sharp rise from 7.0% to 7.5%, fuelled by food products (15.7% y/y in January), which account for half of the inflation rate. The VAT cut on a list of essential items in January, mainly foods (bread, milk, flour, eggs, etc.), has not yet produced any tangible results. In reaction to these figures, on 20 February, the government launched the Food Chain Observatory (Observatorio de la Cadena Alimentaria) to work with companies in the sector to assess the impact of this VAT reduction and discuss possible adjustments.
We expect a significant slowdown in activity in 2023, which is likely to be accompanied by an equally marked fall in the hiring rate. Recruitment is already struggling, with two consecutive slight falls in January (-12,200) and December (-8,300), the first since April 2021.
GDP growth
Guillaume Derrien
