The Harmonised Index of Consumer Prices (HICP) rose again to +3.5% y/y in October (+0.21 pp). Food inflation remains high, although it eased from September (+9.5% y/y in October, -1 pp). However, the surge in olive oil prices persisted (+73.5% y/y, +6.5 pp), contributing 0.37 points to overall inflation. As for energy, the deflation is subsiding but remains significant (-10.1% y/y, -3.7 pp). Core inflation meanwhile, eased to +3.8% over a year.
The European Commission's Economic Sentiment Indicator rose slightly in October (100.3 points), mainly due to an improvement in services. Confidence in this sector has returned to its April 2022 level. Moreover, according to the survey, job creation in services is expected to continue over the next three months, as the index reached its highest level since April 2019. Conversely, the manufacturing sector continues to suffer, with order books below pre-Covid levels. In addition, the manufacturing PMI sank further into the contraction zone, reaching its lowest level in a year (45.1). Household expectations for the economic situation over the next twelve months also deteriorated (-8.8 pp between August and October), keeping the consumer confidence index at a depressed level.
The country’s political situation could also weigh on the economic climate. Pedro Sánchez, the outgoing Prime Minister, was finally re-elected in a vote held in Parliament on 16 November. However, the start of his second term is likely to be turbulent due to the country’s division over the amnesty law soon to be granted to Catalan separatists.
We expect a moderate slowdown in the Spanish economy in H2 2023, as already shown by the preliminary Q3 GDP figures (+0.3% q/q). We expect this deceleration to continue to +0.2% q/q in Q4, which would nevertheless allow growth to reach 2.4% over 2023 as a whole, one of the highest levels in the eurozone.
Lucie Barette (article completed on 21 November 2023)
