Blow to recovery: revised GDP data halves second-quarter growth

The economy grew in the second quarter of this year, but not as much as previously thought. Specifically, gross domestic product (GDP) – the indicator that measures the size of an economy – grew by 1.1% compared to the first quarter, i.e. almost two percentage points less (1.7%) compared to the advance published at the end of July. This follows from the data published and updated on Thursday by the National Statistics Institute (INE). The agency has also revised the data for the first quarter of 2021, and they are also slightly more pessimistic than anticipated: Spanish GDP fell by 0.6% and not 0.4% as originally estimated.

In July, the INE anticipated that Spanish GDP grew by 2.8% in the second quarter compared to the first three months of 2021 and that negative figures were being left behind. Even so, the updated data are not so positive and do not even come close to the estimates of supervisory bodies such as the Bank of Spain, which expected a 2.8% quarter-on-quarter economic growth in the second quarter, and maintained a GDP growth estimate of 2.7% for the third quarter of this year.

Compared with a year ago, that is, with the second quarter of 2020, when the economy experienced a sharp decline due to the pandemic and tighter confinements, the rebound of GDP in the second quarter was 17.5%. That figure is 2.3 percentage points lower than advanced in late July (19.8%) by the INE. It should be borne in mind, however, that these variations are due to the fact that the second quarter of 2020 saw the toughest lockdown restrictions and what the experts call the base effect:the fall in activity recorded then - an unprecedented collapse - leads to strong year-on-year growth a year later, when the economy is already recovering.

Consumption declines

If we look at the different indicators, we can see that the INE has lowered almost all its estimates, but especially the one for consumption – which is currently the main driving force of the economy æ and productive investment. On the one hand, national demand, i.e. household spending on goods and services, was 17.3 points higher in the second quarter in year-on-year terms, when it was initially estimated at over 20 points. The INE revision also lowers anticipated figures for the labour market. Despite the resumption of economic activity, in terms of hours worked, the quarter-on-quarter variation for the second quarter is 4%, when it was initially placed at 4.4%, compared with the first three months of 2021.

On the other hand, the revised external contribution grows slightly and has a positive impact on GDP, as anticipated by the Minister of Economy, Nadia Calviño, who assured that employment and daily economic activity would recover before the end of the year. Exports grew by 38.9% (and not 34.1% as stated in July) and imports by 38.4% (the INE's July advance put them at 36.8%).

How can the INE have got all the figures wrong? The Ministry of Economy emphasises that the quarterly growth figures "highlight the difficulty of making forecasts in a context of high volatility resulting from the impact of the pandemic". In fact, the same explanation was already given earlier this year by the Bank of Spain and the Independent Authority for Fiscal Responsibility, which have even changed their methodology when analysing economic growth since the pandemic began.

Moderation

The downward revision of INE, however, does not translate so much into a stagnation of the economy but rather into a moderation, which may affect last week's economic forecasts. It should be borne in mind that the data for the second quarter continues to point to an upturn (the rebound in GDP was 17.5%), which most economic institutions expect to continue for the rest of the year, especially thanks to the reactivation of the tourist season, which continues to have an important weight in the Spanish economy. In fact, the evolution of the labour market would point in this direction after a reduction in unemployment and an increase in the active workforce, especially in the services sector, at the end of the year. Nevertheless, there are still many workers who are still on furlough.