Spain’s economy expanded at a faster-than-expected rate in the third quarter, driven primarily by robust domestic demand, according to preliminary data from Spain’s National Institute of Statistics (INE). Gross domestic product (GDP) grew by 0.8% from the previous quarter, maintaining the same growth rate as seen in Q2, and defying economists’ predictions of a slight slowdown to 0.6%.
Domestic Demand Drives Economic Growth
The expenditure components of Spain’s GDP indicate that domestic demand played a major role, contributing 0.9 percentage points to growth. Household consumption rose by 1.1%, while government spending increased by 2.2%, reflecting positive trends in both private and public sector spending. However, gross capital formation—a measure of business investments in assets—contracted by 0.7%, signaling caution among investors amid broader economic concerns in Europe.
In contrast, external demand detracted slightly from growth, contributing a negative 0.1 percentage points as imports outpaced exports. Exports of goods and services grew by 0.9%, while imports rose by 1.2%, driven by strong domestic consumption and investment.
Sectoral Contributions: Services and Industry Lead, Construction Falls
Breaking down the data by sector, all major areas of Spain’s economy recorded positive quarterly growth, with the exception of construction. The services sector expanded by 1.1%, and industrial output edged up by 0.2%. Construction, however, shrank by 1.4%, reflecting a pullback in the real estate and infrastructure sectors. This decline suggests potential risks in the housing and commercial property markets.
Yearly Growth Surpasses Expectations
On an annual basis, Spain’s economic growth accelerated to 3.4%, up from 3.2% in the second quarter, surpassing forecasts of a slower pace of 2.9%. The unexpected rise in annual growth has been partially attributed to Spain’s vibrant tourism sector and an expanding labor force, supported by immigration.
Combination of a booming tourism industry and an increase in the labor supply has bolstered household consumption, creating a “virtuous cycle” that has sustained strong growth. They anticipate that these factors will continue to fuel the Spanish economy, though they also suggest monitoring for any potential global downturns that could impact tourism and other key sectors.
Outlook
Spain’s stronger-than-expected growth provides a positive signal amid broader uncertainties in the Eurozone. However, challenges remain as Spain contends with inflation, external demand fluctuations, and sector-specific slowdowns like the one seen in construction. Future quarters may depend heavily on the country’s resilience in its core economic sectors and the global economic environment.
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