GDP growth stabilizes in Q4

GDP growth surprises markets on the upside: Economic activity growth was unchanged at Q3’s 0.8% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter. The reading surprised markets on the upside, as they had widely expected a deceleration, and was above the Euro area’s flat result. On a seasonally adjusted annual basis, economic growth was also unchanged at Q3’s 3.5% in Q4, marking the joint-best result since Q1 2023.

Investment rebound offsets widespread slowdown: Fixed investment bounced back on the back of ongoing ECB monetary policy loosening, rebounding 3.4% in Q4 from the 1.4% contraction recorded in the previous quarter. On the flip side, private consumption growth fell to 1.0% in Q4 (Q3: +1.2% s.a. qoq). This marked the weakest expansion since Q1 2024, hampered by severe floods in the eastern region of Valencia. Government spending growth, meanwhile, was the slowest since Q3 2024, expanding 0.4% (Q3: +2.5% s.a. qoq). All in all, domestic demand contributed 1.2 percentage points to the headline reading, up from 1.0 percentage points in Q3. On the external front, exports of goods and services growth fell to 0.1% in Q4 (Q3: +0.4% s.a. qoq), marking the worst reading since Q3 2023. Conversely, imports of goods and services growth sped up to 1.3% in Q4 (Q3: +0.9% s.a. qoq), marking the best reading since Q1 2023. As a result, external demand detracted 0.4 percentage points from the headline reading, worsening from Q3’s 0.2 percentage point detraction.

GDP outlook: The economy is expected to lose some steam in the coming quarters, though our panelists are likely to upwardly revise their 2025 projections due to carry-over effects from Q4’s overperformance. In 2025, Spain will remain the fastest growing among the large Euro area economies, though cooling public spending, private consumption and exports will push growth below 2024’s level.

Panelist insight: ING’s Ruben Dewitte commented on the outlook: “With growth in the fourth quarter already driven by domestic demand and business investment, we expect these components to continue being the primary drivers of growth in 2025. The household savings rate stands at 13.1%, which is five percentage points above its pre-Covid level, and coupled with a strong labour market, consumption is anticipated to keep rising alongside disposable income growth.”

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