BBVA Research | The recovery of the Spanish economy will continue during the two years 2019-2020. In fact, and despite the risks which still hang over the scenario, growth expectations have been revised upwards one tenth to 2.3% for 2019 and remain at 1.9% for 2020.

Although a slowdown is expected in growth in all parts of consumption and investment compared to the previous two years, domestic demand will continue to be the main support for growth (2.0 pp on average). The contribution of net external demand will return to positive territory (0.1 pp; -0.3 pp in 2018), favoured by a progressive recovery in exports, a looser monetary policy and lower oil prices. If this scenario occurs, the increase in activity will be sufficient to create 810,000 jobs and reduce the unemployment rate to around 12.7% in 2020.

Domestic demand continues to lead growth supported by consumption and residential investment.

The spending on private consumption could recover part of the dynamism lost in the first quarter, while public consumption remains stable. So the signs that can be extracted from the spending indicators suggest that household consumption could have increased around 0.6% q/q (2.0% y/y) in the second quarter, having slowed in the previous quarter (0.4% q/q, 1.5% y/y in Q119). The available data on budgetary operations indicate that consumption by public administrations could have increased 0.4% q/q (2.1% y/y) in Q219, in line with growth in previous quarters.

Although at a slower rate, investment remains one of the supports for growth in domestic demand. Partial indicators suggest that investment in machinery and equipment could be close to stagnation (0.5% q/q; 1.6% a/a), which means, in any case, consolidating a level of solid activity, after the strong recovery observed in Q119 (4.3% q/q; 7.3% y/y). Equally, residential investment has slowed one point to 0.9% q/q (4.0% y/y), after the recovery observed in the previous quarter (1.9% q/q, 3.4% y/y in Q119). Finally, the inter-quarterly growth in investment in other construction is estimated to be recovering (0.6% q/q; 1.7% y/y), after the decline registered up to March (-1.5% q/q; 5.1% y/y).

Trade flows regained some traction in the second quarter, although doubts about their evolution remain.

Exports of goods and services have increased 1.4% q/q (1.3% y/y) in the second quarter, after the disappointing beginning to 2019. In concrete terms, and despite an environment of elevated uncertainty, exports of goods increased 1.8% q/q (0.0% y/y) in Q219, after four consecutive quarters of declines. Exports of services remain in positive territory (0.5% q/q, 4.1% y/y), led by those not linked to foreign tourism (1.3% q/q; 4.2% y/y), while those related to consumption by those not resident in the national territory fell back (-0.5% q/q; 4.0% y/y), following strong advances in Q418 and Q119.

In line with the evolution of final demand, the information available at the close of this review suggests that imports have increased 1.4% q/q (0.1% y/y) in the second quarter of the year and has recovered some of its dynamism after the fall observed in Q119 (-0.3% q/q; -0.5% y/y). This, together with the expected performance of total exports, means that net external demand will contribute 0.0 pp q/q (0.4 pp y/y) to the growth of the Spanish economy in the second quarter of the year.

In short, partial indicators suggest that in Q219 domestic demand will contribute 0.6 pp to the quarterly increase of GDP (2.0 pp y/y) thanks to the advances in all its parts.