Eco Pulse

Spain: Growth falters, but the outlook remains encouraging


Contrary to the trend observed in the other three major eurozone countries, Spain recorded a more moderate fall in inflation in November. According to the INE, the growth in the Harmonised Index of Consumer Prices (HICP) slowed by 0.2 pp to 3.3% y/y this month (while the decline reached 0.7 points in France and Germany, and 1.1 points in Italy). Based on recent trends in the producer price index, which recorded its eighth consecutive month of deflation in October (-7.8% y/y), this consumer price slowdown is set to continue, and even accelerate, over the coming months.

This year-end also saw the first contraction in three months in the composite PMI index (49.8). The activity indicator remains low in the manufacturing sector, but posted an increase in November (+1.2 points to 46.3). Other industrial indicators are also losing momentum: the year-on-year fall in industrial production accentuated slightly in October (-1.5% y/y after -1%), mainly due to a decrease in activity in the mining sector and in the manufacture of capital goods.

Conversely, the PMI in services fell by 0.1pp in November but remains slightly above the 50 threshold (51). However, some sub-indicators appear to have deteriorated. This is the case for new export orders (47.5) and new business (49.4).

If it continues – even if it eases, as we expect – the resilience of the labour market (marked in November by the number of unemployed returning to its level of 15 years ago, i.e. 2.73 million), coupled with the moderation in inflation expected in 2024, should support household purchasing power and private consumption over the coming quarters. However, the downturn in the manufacturing industry is likely to weigh on activity in the shorter term, even if growth as a whole remains well oriented. According to our forecasts for 2023, Spanish growth (2.3%) will be well above the eurozone average (0.5%). However, this high figure masks a less dynamic end to the year and start to 2024 (0.2% q/q), before growth rates return to more positive levels.