Spain's GDP upward revision fuels uncertainty on real growth momentum

Spain's GDP upward revision fuels uncertainty on real growth momentum
By Reuters
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By Belén Carreño

MADRID -Spain's economy grew 2.6% in the third quarter, faster than an 2% initial estimate, driven by higher than expected household consumption, the INE statistics institute revealed, although annual growth may still fall short of the government's target.

Summer is the key quarter for the tourism-dependent Spanish economy. Thursday's new data showed activity gaining momentum in July-September as Spain opened up to visitors and rolled out vaccines, even though it is still short of pre-pandemic levels.

Private household consumption grew by 1% in the third quarter over the previous quarter, well above the 0.5% contraction estimated by the INE in its flash data in late October. The swing largely explains the upward revision for GDP.

In September, the INE made a surprise sharp downward revision of growth in the first and second quarters of the year that threw out all forecasts and triggered a wave of downward revisions.

Since then, Spanish economists have been locked in intense debate over whether the metric is succeeding in capturing economic activity after the 2020 lockdowns brought a record slump of 10.8%.

For the first time in the Mediterranean nation, there has been a decoupling between employment, already above 2019 levels, and robust tax collection, and economic growth, which has lagged behind.

Last week, the Bank of Spain's chief economist, Oscar Arce, said structural post-pandemic changes such as teleworking may not record hours worked accurately, and the shift online of many activities and a decline in the use of cash could bolster tax collection without necessarily reflecting in GDP statistics.

Raymond Torres, chief economist at the think tank Funcas, added that the recovery of industries with low productivity, particularly hospitality, does not boost GDP as much as others.

In recent days, the Bank of Spain and IMF have both cut their growth forecasts for 2021 to 4.5% and 4.6% respectively while the government maintained its forecast at 6.5%.

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