The end of the year is shaping up to be as dynamic as it has been all year in Spain. After posting even greater growth than expected in Q3 (0.8% q/q compared to an anticipated level of 0.6%), the first available data for Q4 unsurprisingly indicate that the Iberian country will remain at the head of the pack for the four major euro zone economies. According to our forecasts, real GDP should grow by a further 0.7% q/q in the final quarter of the year, bringing average annual growth to 3.0%.
Business sentiment remained very positive in October (Composite PMI at 55.2; -1.1 pts over one month), buoyed by manufacturing activity (54.5; +1.5 pts). As a result, it hit its highest level since February 2022, thanks to a further increase in domestic and foreign demand (with the new orders component up 0.9 pts, at 54.3). On the other hand, the services sector continues to grow at a spectacular pace (54.9), albeit more slowly than in September (-2.2 pts), due to the slowdown in growth in most of its components.
The labour market held up better in October than in recent years. The unemployment rate increased by more than 26,000 people, which is the smallest increase for an October since 2013[1], and the number of people registered with social security saw its highest increase in 22 years[2] (+134,307 people). In addition, the outlook for the labour market remains positive, with business leaders in the manufacturing and services sectors still reporting increased hiring (+1.7 and +0.2 pts, respectively, according to the PMI survey).
Harmonised inflation remained below 2% in October (1.8% y/y), despite increasing slightly (+0.1 pp) as a result of the VAT hike on basic foodstuffs, as well as a base effect on energy prices. This overall slowdown in inflation from the levels seen a few months ago, combined with the continued significant rises in negotiated wages (3.0% y/y in Q3), is helping household purchasing power to continue to recover.
This increase in real income, combined with the gradual decrease in household savings (13.1% of GDI in Q2), is buoying consumption. Economic data from the start of Q4 indicate that this should remain the driving force behind growth, with new vehicle registrations rising again in October (+7.2% y/y), and retail sales volumes up 4.1% y/y.
Article completed on 25 November
