World Economy

Hard for Spanish Consumers to Keep Up Spending

Hard for Spanish Consumers  to Keep Up SpendingHard for Spanish Consumers  to Keep Up Spending

Consumers have been the key to the Spanish economic recovery, but that may be about to change. The nation’s economic turnaround began in 2014, when an improving jobs market and slowing inflation gave households more cash to spend, unleashing years of pent-up demand. The Spanish economy surged ahead, growing at a pace of more than 3%.

But there are now signs the spending could cool, replacing Catalonia’s failed independence bid as the biggest risk to the Spanish economy. And the financial health of shoppers matter. Private consumption remains the largest component of gross domestic product, accounting for more than half of total output, Bloomberg reported.

“Some of the tailwinds are fading,” said Angel Talavera, lead economist as Oxford Economics in London. “The pace of job creation is going to slow as the unemployment rate drops, wages have remained stagnant and the savings rate for families is close to a historic low.”

Nonetheless, Talavera predicts growth will still reach 2.8% this year, topping the more subdued estimate of 2.4% from the International Monetary Fund.

Retail sales in January missed estimates and growth slowed in the fourth quarter last year. While the figure is preliminary, a full report due in March should provide further clues about the state of the recovery.

With wages staying flat, consumers are saving less and finding fewer reasons to go out and splurge. Inflation, while still subdued, has also returned from rock-bottom levels three years ago.

That means the economy may need additional fuel from investments and exports to keep up the pace, although that may prove elusive, Talavera says.

Meanwhile, official statistics show Spain’s economy grew 3.1% in 2017, two percentage points slower than the previous year but still above the European Union average.

The National Statistics Institute last week said that GDP growth slowed in the final quarter to 0.7%, from 0.8% and 0.9% in the third and second quarters.

The statistics were in line with recent estimates by Spain’s central bank, which said that strong exports were offsetting the negative effects of uncertainty in Catalonia. It warned, however, of risks ahead if the independence bid in the prosperous northeastern region keeps the political standoff alive.

Spain’s conservative government has made economic growth and job creation its chief goals since taking office in 2011.

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