Photographer: Angel Navarrete
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Forget Catalonia. Spanish Shoppers Are Key to the Economy

Stagnant wages, falling savings are making it hard for Spanish consumers to keep up spending
Updated on

Consumers have been the key to the Spanish economic recovery, but that may be about to change.

The nation’s economic turnaround began in 2014, when an improving jobs market and slowing inflation gave households more cash to spend, unleashing years of pent-up demand. The Spanish economy surged ahead, growing at a pace of more than 3 percent.

But there are now signs the spending could cool, replacing Catalonia’s failed independence bid as the biggest risk to the Spanish economy. And the financial health of shoppers matter. Private consumption remains the largest component of gross domestic product, accounting for more than half of total output.

No Piggy Bank

Savings rates lowest levels since early 2008

Source: Eurostat

Note: data is seasonally adjusted

“Some of the tailwinds are fading,” said Angel Talavera, lead economist as Oxford Economics in London. “The pace of job creation is going to slow as the unemployment rate drops, wages have remained stagnant and the savings rate for families is close to a historic low.”

Nonetheless, Talavera predicts growth will still reach 2.8 percent this year, topping the more subdued estimate of 2.4 percent from the International Monetary Fund.

Retail sales in January missed estimates and growth slowed in the fourth quarter last year. While the figure is preliminary, a full report due in March should provide a further clues about the state of the recovery.

With wages staying flat, consumers are saving less and finding fewer reasons to go out and splurge. Inflation, while still subdued, has also returned from rock-bottom levels three years ago.

That means the economy may need additional fuel from investments and exports to keep up the pace, although that may prove elusive, Talavera says.

(For more economic analysis, see  Benchmark)
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