Spain’s economy raced ahead in the second quarter, expanding at the fastest pace in eight years.
Gross domestic product rose 1 percent from the previous quarter and 3.1 percent on an annual basis, the Madrid-based National Statistics Institute said Thursday in a preliminary report. The quarterly growth matches the median estimate in a Bloomberg News survey of 14 economists and the Bank of Spain’s estimate.
While the report didn’t break down components of GDP, economists see household consumption and domestic demand as the drivers of the Spanish economy, which has now added eight consecutive quarters of increases. The economy expanded 0.9 percent in the first three months of the year.
“We expect the second quarter to be the strongest quarter for internal demand, and then moderate as the year progresses,” Jose Manuel Amor, partner at Analistas Financieros Internacionales in Madrid, said before the data were released. “At this point, Spain has all the elements to continue posting strong growth led by household consumption.”
Separately, the statistics institute said consumer prices on a European Union-harmonized basis fell 0.1 percent in July from a year earlier. On a monthly basis prices fell 1.6 percent, snapping a five-month streak of increases.
With a general election due by year’s end, Prime Minister Mariano Rajoy is courting middle-class voters with a mix of lower taxes and a stronger economy.
Earlier this month, the government raised its forecast for annual growth for the second time this year to 3.3 percent, and brought forward a tax reduction initally planned for 2016.
The move will put 1.5 billion euros ($1.7 billion) into the pockets of Spanish families, which should further boost consumer spending. Tax breaks come as the pace of job creation accelerates, with unemployment down to 22 percent from a record high of 27 percent in 2013.
Coupled with low inflation and cheaper energy prices, improved financial conditions are getting Spaniards spending again. Retail sales rose 2.3 percent on a seasonally adjusted annual basis in June, the statistics agency said Wednesday.
Having pegged his re-election hopes to jobs and growth, Rajoy faces the question whether the recovery is strong enough to secure him a second term in office. Hit by a series of corruption scandals and austerity, his conservative People’s Party has lost more than two million voters since the previous election in 2011, when it secured an overall majority.
The PP now risks a fragmented election result that could shut Rajoy out of government if left-wing parties ranging from its traditional Socialists rivals to anti-austerity party Podemos join forces in a coalition government.
A poll published by El Pais newspaper on July 26 showed the PP and the Socialists running almost neck-and-neck with 23.1 percent and 23.5 percent of the vote each respectively. Podemos stood in third place with 18.1 percent, followed by pro-business party Ciudadanos with 16 percent.