Spanish growth slowed slightly in the second quarter while inflation picked up in July as the economy faces months of uncertainty while the country’s main political parties battle to form a government after Sunday’s inconclusive snap election.
Quarterly output rose 0.4%, supported by consumer demand and exports, according to data from national statistics institute INE released on Friday. That’s slower than the revised 0.5% increase in gross domestic product in the previous three months and in line with the median forecast of economists surveyed by Bloomberg.
Consumer prices rose 2.1% in July from a year earlier, accelerating for the first time in three months, according to the institute. The pace of inflation was expected to remain unchanged at 1.6%, the median forecast in a Bloomberg survey showed.
The rate of underlying inflation excluding energy and fresh food items unexpectedly accelerated for the first time in five months to 6.2. Economists had anticipated a slight easing to 5.7%.
Prime Minister Pedro Sanchez’s Socialists, who finished second in the ballot but did better than expected, is trying to stitch together enough support among smaller parties to stay in power. He is seen as having an edge in negotiations over conservative opponent Alberto Nunez Feijoo.
If neither leader succeeds in forming a new government in the coming weeks, a new election could be called as early as December. In the meantime, Sanchez cannot propose new legislation except in an emergency, potentially delaying the approval of reforms needed to unlock billions of euros in European Union recovery funds in the second half of the year.
Ongoing uncertainty and the prospect of another vote may introduce an element of instability to the economy and hamper long-term growth prospects, according to ING economist Wouter Thierie. Others see only a limited impact, with plenty of recovery funds still flowing and a strong tourism industry.
The International Monetary Fund this week nearly doubled its forecast for Spanish economic growth this year to 2.5% from 1.5%, putting it on course to be one of the world’s fastest-growing developed nations in 2023. The country’s jobless rate dropped to 11.6% in the second quarter, its lowest in 15 years, but still above the euro-zone median.
High interest rates will keep pressure on Spaniards’ finances, however. European Central Bank President Christine Lagarde unveiled a ninth straight increase in interest rates on Thursday and said officials have an open mind on what to do next in the fight to bring inflation back to a 2% target. Last month, Spain became the first euro-zone country to see the measure slow to below that level.
--With assistance from Ainhoa Goyeneche and Joel Rinneby.
