January's business confidence surveys showed signs of improvement. The composite PMI index points to an expansion in activity (51.5), driven by the ongoing solid performance of the services sector (52.1). The manufacturing sector is also seemingly enjoying a bit more tailwind at the start of this year. After ten months of contraction, the associated PMI is showing signs of recovery (49.2; +3.1 points), with Spanish companies reporting a lesser deterioration of all sub-indices, with the exception of the sub-index relating to suppliers' delivery times (44.5; -3.5 points). Although still depressed, the consumer confidence index also recovered slightly in Q4 2023 (18.5 points, compared to -20.4 points in September), which has had a positive impact on demand. In addition, the retail trade index is indicating strong sales growth over the past three months (+5.3; +9.5 points over one month). Expectations for the coming months are also still very positive, despite a bit less so compared to December (-3.3 points).
Job growth is continuing (+2.6% y/y in January, bringing the number of people working to 20.6 million, the highest level recorded in the historical series) and in December, the unemployment rate hit its lowest level in 15 years, standing at 11.7%. Combined with continued strong wage growth[1], this should have a positive impact on domestic demand, which will remain one of the primary drivers of Spanish growth.
After higher prices were recorded once again in January due to the partial withdrawal of measures aimed at reducing energy taxes at the start of the year, inflation slowed sharply in February, according to the preliminary estimate from the Spanish National Statistics Institute (INE) (2.8% y/y; -0.6 percentage points over a month). However, this fall in inflation is not expected to continue in March, as the government has confirmed that, as the price of a megawatt-hour on the wholesale market was below EUR 45 in February[2], the VAT rate on electricity will shift back from 10% to 21% next month.
After growing by 0.6% q/q in Q4 2023, Spanish real GDP is expected to slow in Q1 2024 (0.2% q/q), before returning to clearly more positive rates of growth from Q2 onwards. Over 2024 as a whole, we are expecting Spanish growth (1.8%) to once again exceed that of the Eurozone (+0.7%).
Article completed on 29/02/2024
