The decline in consumption has slowed GDP growth to 0.2% between March and March

The INE has reduced the 0.2% economic growth rate in Spain's first quarter, which it had calculated two months ago, to a new jug of chilled water. The omrome variant had a devastating effect on Spain's economy, making it more difficult than expected. Furthermore, the conflict in Ukraine at February's end only made matters worse. So, the volume of GDP is still 3.6% lower than it was in 2019, prior to the pandemic.

After growing by 2.2% in last quarter, the collapse in family consumption (no lower than -2% between January and March) has caused it not to register a negative rate for a year. This was despite the savings made in the pandemic.

The GDP grew 6.3% annually instead of 6.4% as predicted in the first estimate by the INE. This is a significant improvement when compared to the first quarter last year, which was still severely affected by the effects of the pandemic. Despite this, the INE notes that the foreign sector contributed 2.3% to the GDP for the first quarter. This is five tenths more than the previous quarter and the highest in nine years.

The main problem is the rise in prices. This affects essential goods like electricity and food, and decreases households' spending power in the rest. It also affects households with lower incomes more, says Santiago Martinez Morando from Ibercaja's Economic and Financial Analysis.

He acknowledged that the shock came with the economy "benefiting by the reactivation in the most affected sectors, and with the accounts households and companies very health in aggregate terms -although there are significant divergences between sectors and income levels-."

The most striking thing about the INE data is the low evolution in family consumption compared with the high performance of employment. Although the employment levels before covid were exceeded, there are still 8% to reach 2019's level of consumption.

The GDP grew only 0.2% in its first quarter. However, the employment measure of hours worked rose by 3.2% during the same period. The Government has voiced concern that the INE may be misleadingly measuring the economic evolution because these employment data are not included in the GDP.

The increase in investment in machinery, capital goods (9.1%), and housing (0.4%) accelerated the quarterly rise to 3.4%. This is the highest quarterly growth since the third quarter 2020.

At a quarterly level, the foreign sector saw exports slow to 1.1% compared to 7.2% in the previous quarter, while imports dropped by 0.8% for the first time since confinement.

The expert says that fiscal policy is still expansionary. "It's more likely that there will be greater laxity in the next months than a withdrawal from stimuli." This means that monetary policy won't be as favorable than in the past years, even though interest rates are still low in historical contexts and negative in real terms.

According to the analyst, the most likely scenario for next quarters is that of an "economic recovery" even though it's less than was expected prior to the conflict in Ukraine which exacerbated inflationary pressures. However, one must remember that there are many risks due to the conflict and volatility in raw material prices. This could lead to a delay in consumption or investment decisions. "This pessimism will become a self-fulfilling prophecy."