Spain's first quarter GDP slightly ahead of forecasts

Spain's National Institute of Statistics (INE) noted that the country's economy grew 0.9% in the first quarter on the back of improved investment, better performance in the private sector and a sizeable contribution by public services.

On a year-on-year basis, the country's GDP grew 2.7% in the first quarter, seven-tenths of a percentage point more than in the previous quarter.

Growth was chiefly due to improved domestic demand (3 points versus 2.7 points in the previous quarter) and a smaller drag from external demand (-0.3 points, from -0.7).

It was Spain's seventh consecutive quarter of growth.

Public administrations boost growth

Household consumption experienced quarterly growth of 0.7%, two tenths-less than in the previous quarter (0.9%), marking eight consecutive quarters in positive territory.

Public administrations accelerated their spending more than two points

Public spending ramped up in the first three months of the year, from a negative quarterly rate of 1% in the fourth quarter of 2014 to a 1. 6% pace in the first quarter, possibly in anticipation of the local and regional elections that were held on 24 May.

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Fixed capital investments jumped at a quarterly clip of 1.3%, a tenth less than in the previous three months, with an increase of 1.5% in construction investment, and a 1.4% rise in outlays on business equipment.

Exports growth picked up from flat to a 1% increase pace in the first quarter of 2015, while imports grew by 0.8%, in contrast to the 0.6% decline experienced in the previous quarter.

Market comment

Commenting on the data, BNP Paribas analysts noted that growth was in line with their expectations, adding that “the main driver of growth was, once again, domestic demand”.

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They also pointed out how improved credit conditions on the back of the ECB's quantitative easing, depreciation of the euro and the fall in oil prices, “helped reduce firms' production costs” and “clearly helped corporates”. They also noted that both consumption and investment were “getting a boost from the tax reform that came into force in January, and which has reduced personal and corporate income tax.”

The Spanish economy will continue to grow “at a robust pace”

Analysts expect the Spanish economy to continue to grow “at a robust pace” in the second quarter. “Leading indicators, such as the composite PMI in April, are already above their average levels in Q1.

"On the hard data front, retail sales figures for the month of April opened the quarter on a strong note, with a 1.3% month-on-month (wda) increase, and there is a strong carry-over effect in industrial production for Q2. In this respect, we believe Q2 GDP growth should at least match Q1’s 0.9% quarter-on-quarter print.”

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