Spain’s Economic Growth Slows in Early 2023

Spain’s economy experienced a year-on-year GDP growth of 2.8% in the first quarter of 2023, a slight decline from the previous quarter’s growth rate of 3.3%. Key to the story is domestic demand, which has been a major driver of growth. External demand has had a negative impact on overall economic performance. The figures further underscore the remarkable resilience of the Spanish economy to external shocks notwithstanding the headwinds created by perniciously varying conditions across the globe.

Spain’s economy grew by 0.6% in the first three months year. This represents a decrease from a revised quarter-over-quarter growth of 0.7% in Q4 2022. Strong domestic demand was responsible for 3.2 points of the 6.1% year-on-year GDP growth. This shows exactly how important a role it plays in driving economic activity. As shown in the chart below, external demand was a meaningful drag of -0.4 points to GDP growth, underscoring challenges in international markets.

A deeper look into quarter-on-quarter growth reveals the main driver was domestic demand, contributing 0.4 points. At the same time, external demand bolstered the overall rise by a tepid 0.2 points. These figures further underscore the importance of domestic consumption. Labor demand is likely to remain robust, supported by accelerating wage growth, elevated wages, and immigration ramping up.

County inflation trends are indicative of broader regional and national trends in shifts in economic landscape. Like Portugal, inflation in Spain increased in April—the Consumer Price Index (CPI) surged 0.6%. That was a jump from a slow 0.1% gain in March. The annual CPI was 2.2% in April, down just a little from March’s 2.3% rate. This notable drop is due largely to the decrease of prices in electricity and fuel sectors, helping to reduce high inflation.

Even with the impressive slackening of speed, Spain’s economy still outshines a great deal of its European companions. Economic analysts have indicated that the twin shocks of strong internal consumption and strengthening labor market conditions will lead to sustained economic stability. Projections point toward continued strength in consumption as households start to enjoy the fruits of higher wage growth and suddenly bigger disposable incomes.