Election uncertainty weighs on Spanish GDP in first quarter

Headline economic growth in Spain remained robust at the start of the year, but the details of the report revealed a sharp slowdown in investment due to the impact of the severe political uncertainty the country was facing following the inconclusive national elections held on 21 December, analysts said.

Gross domestic product in the Mediterranean country expanded at a 0.8% quarter-on-quarter clip in the first three months of 2016, unrevised from a preliminary estimate, according to second release of the report by the country´s statistics office, INE.

Versus a year ago the pace of expansion dipped from 3.5% in the last quarter of 2015 to 3.4%.

Consumer spending jumped by 0.9% quarter-on-quarter, "in line with the dynamic labour market" Barclays´s Apolline Menut said in a research note sent to clients, alongside a strong 0.8% rise in public sector spending.

The latter confirmed the "challenging situation of Spanish public finances" Menut said.

In parallel, investment growth slowed from the 1.1% clip observed in the previous quarter to a 0.4% pace - the weakest reading in two years.

Foreign demand also faltered, leading to the first drop in export since the third quarter of 2013, although imports were more or less stable, rising by 0.3%.

Net trade subtracted 0.3 percentage points from the quarterly rate of growth of GDP.

Year-on-year unit labour costs were 0.5% lower in the latest quarter, below the -0.2% reading for the economy´s implicit price flator, INE said.

Activity in agriculture and real estate were weakest.

Growth to remain more-or-less steady next year

Barclays said it expected "protracted political uncertainty" ahead of the election re-run on 26 June, which would weigh on investment.

A moderation in consumption and slower increases in employment would see the rate of growth in GDP ease from 3.2% in 2015 to 2.8% in 2016.

Data released earlier in the same session in the UK had revealed a contraction in investment by British businesses over that same time frame, which some analysts linked to the build-up in uncertainty ahead of the 23 June referendum on the country´s membership of the European Union.