Despite the support of tourism, which has been at levels close to those of 2019 since the beginning of the year[1], the effects of the rise in interest rates and the drop in household purchasing power on the Spanish economy should worsen over the course of the year. The continued creation of jobs is helping cushion the shock for the time being: according to the Spanish employment agency (SEPE), 47,883 additional active workers were affiliated with the social security system in May, a rise of 0.2% over the month, bringing the increase to 2.3% since the beginning of the year. However, the potential for improvement seems increasingly limited. Growth should therefore slow in Q2 (+0.3% q/q according to our forecasts after +0.5% q/q in Q1) before coming to a halt in the second semester.
In harmonised terms, consumer price inflation slipped below 3% y/y in May, one of the slowest pace in the eurozone behind Luxembourg (2.0%) and Belgium (2.7%). Nevertheless, core inflation accelerated to 3.8%, fuelled by moderate wage growth. Wages increased by 3.3% year-on-year in May on the basis of collective bargaining; this increase is slightly higher than the one observed at the end of 2022 (2.8% y/y).
The fall in inflation is not (yet) leading to a significant rebound in household confidence, which according to the European Commission’s survey, continued to oscillate, in May 2023, to levels well below those observed before the outbreak of the war in Ukraine, and below the long-term average. Above all, the survey indicates an unprecedented deterioration in household savings capacity since 2008. So far, this has not affected retail sales (excluding fuel) which rose sharply in April (+4.1% m/m), exceeding their pre-pandemic level for the first time.
Guillaume Derrien (article completed on 20/06/2023)
