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SPANISH ECONOMY

Property slump sees Spain’s GDP growth shrink but inflation is easing

Spain's economy narrowly dodged a contraction in the third quarter with growth of 0.2 percent, the country's national statistics body said Friday. Inflation, however, has dropped to 7.3 percent.

Published: 28 October 2022 15:23 CEST

Property slump sees Spain's GDP growth shrink but inflation is easing

Among Western economies, Spain was also one of the worst hit by the economic fallout of the Covid pandemic. (Photo by OSCAR DEL POZO / AFP)

The country’s growth is sharply down from 1.5 percent in the previous quarter, according to provisional data from the National Statistics Institute (INE).

The slowing growth is largely down to poor performance in the real estate sector, where activity contracted by 2.5 percent, and a drop in exports and business investment.

However, inflation in Spain eased in the last three months, reaching 7.3 percent in October, the INE said.

This is a sharp drop from the 10.8 percent in July, which was the highest in nearly 38 years.

Like other countries across Europe, Spain has been struggling with soaring inflation as a result of the fallout from the war in Ukraine and the reopening of the economy after pandemic-related lockdowns.

Among Western economies, Spain was also one of the worst hit by the economic fallout of the Covid pandemic, largely due to its heavy dependence on tourism.

The country’s public accounts control body has warned that the Spanish economy could contract in the last quarter of this year and the first quarter of next — putting Spain in a technical recession.

But the government has insisted the country can dodge a crisis.

Spanish economy minister Nadia Calviño said in a TV interview Wednesday that it was “obvious” the country was “at a delicate moment”, but that the economic indicators do not suggest there will be a recession.

The government has targeted GDP growth of 4.4 percent this year.

READ ALSO: Is Spain heading for a recession?

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Spain's unemployment rate inches up to three million

The jobless rate inched up to 12.67 percent in the period from July to September from 12.48 percent in the previous three-month period, national statistics institute INE said in a statement. Youth unemployment now stands at 31 percent.

The number of unemployed people rose by 60,800 in the third quarter to a total of 2.98 million even though 70,000 jobs were created, with most jobs lost in services, including Spain’s key tourism sector, and agriculture.

The jobless rate was still lower than during the same period a year ago when it stood at 14.57 percent.

The number of job seekers in Spain fell below three million in May for the first time since November 2008 at the start of the global financial crisis.

The fall in joblessness was due to a rebound in Spain’s tourism sector following the end of most pandemic travel restrictions and a labour market reform which limits the back-to-back use of temporary contracts.

The number of permanent contracts in Spain in the third quarter rose by 444,200.

Among Western economies, Spain was one of the worst-hit by the economic fallout of the pandemic, with its gross domestic product collapsing by 10.8 percent in 2020, largely due to its heavy dependence on tourism.

Some half a million people lost their jobs in 2020 in Spain, which has one of the highest rates of unemployment in the Organisation for Economic Co-operation and Development.

The government predicts the jobless rate will drop to 12.2 percent at the end of 2023 despite a slowdown in the economy due to soaring inflation and the uncertainty caused by the war in Ukraine.

But many analysts are much more pessimistic. Investment bank ING predicted Spain’s unemployment rate will rise steadily to 14.3 percent in the third quarter of 2023.

It expects the Spanish economy, the eurozone’s fourth largest, will enter a mild recession in the fourth quarter of 2022 that will continue until the first quarter of next year.

“Business confidence has also deteriorated sharply in recent months, which will encourage companies to be more careful with new hires,” ING economist Wouter Thierie said in a research note.

The higher share of permanent contracts, however, will cause the rise in the jobless rate to “be less pronounced than during previous recessionary periods”, he added.

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