Accelerated GDP growth observed in Spain during the second quarter, exceeding predicted expectations
Spain Outperforms Eurozone Peers with Strong Economic Growth in Q2 2021
Spain's economy grew by 0.7% in the second quarter of 2021, outpacing its eurozone peers whose growth remains sluggish. According to analysts polled by Reuters, the eurozone's GDP is expected to have remained flat in the same period.
This impressive growth is primarily attributed to broad-based domestic demand, strong private consumption supported by employment and wage growth, ongoing investment fueled by moderated borrowing costs and EU recovery funds, and minimal negative impact from U.S. tariffs because Spain's exports to the U.S. are relatively small.
Key factors behind Spain's outperformance include private consumption growth, which increased by 0.8% quarter-on-quarter, bolstered by solid employment and wage gains. Broad-based fixed investment also saw growth, with all major components of investment growing, helped by lower borrowing costs and Next Generation EU (NGEU) recovery funds.
Spain’s economy's resilience is further demonstrated by the limited impact of export drag, as Spain’s export exposure to the U.S. is less than half the euro area average. This means that rising U.S. tariffs had minimal impact on Spain’s economy compared to others like Ireland.
The services sector, notably tourism (about 12% of GDP), showed resilience contributing to growth, despite some headwinds like power outages affecting industrial production and some softness in services.
In contrast, Germany, the eurozone's largest economy, contracted in Q2 due to declines in industrial and construction investment. Meanwhile, Spain continued to grow.
On an annual basis, Spain's second-quarter economic output expanded to 2.8%. Construction and manufacturing also experienced growth, and the economic growth was accompanied by a decrease in the unemployment rate to 10.29%, the lowest since early 2008.
The expansion was driven by services, specifically retail, lodging, and transportation. However, agriculture contracted during this period. The French and Italian economies are expected to grow by 0.1% in the second quarter, while the growth rate in Spain was higher than the expected 0.6%.
Looking ahead, the Spanish government expects a 2.6% growth for the year 2023. However, the economic activity in Spain is contrasted by expected anaemic growth in France, Germany, Italy, and the euro zone as a whole.
Preliminary data from the National Statistics Institute revealed these findings on Tuesday, with the second-quarter data for France, Germany, Italy, and the euro zone as a whole set to be released on Wednesday.
Business growth in Spain was bolstered by strong private consumption and fixed investment in Q2 2021, while finance was supported by moderated borrowing costs and EU recovery funds. In contrast, the eurozone's largest economy, Germany, contracted during the same period, illustrating Spain's outperformance in the region.
