Tuesday. 21.05.2024

The war in Ukraine and its economic consequences can already be seen in the development of the Spanish economy.

According to the Spanish statistical office (INE), Spain's Gross Domestic Product (GDP) suffered a sharp slowdown in the first quarter of the year 2022 and grew by only 0.3%. This is 1.9 percentage points less than in the previous quarter (when it increased 2.2%) and 2.3 points less than in the preceding one (2.6%).

Oil, gas and electricity were already at skyrocketing prices before the invasion of Ukraine. But the aggression ordered by Russian President Vladimir Putin has worsened the situation, which consumers perceive when filling the fuel tank of their vehicles and paying the electricity bill.

The very high energy prices, together with the problems in the supply chains, the transport strike and other uncertainties, have ended up being transferred to other products such as food, whose prices also increased strongly. And the (logical) reaction of many has been to cut costs, with the consequent contraction in consumption.

The Omicron variant of Covid-19, which affected Spain especially from January, has also had a downward influence on economic activity. The boom in consumption and travel experienced in April due to Easter will not be reflected in GDP until the figures for the second quarter are known.

Consumption collapse

Between January and March, domestic consumption in Spain fell by a total of 2.3% compared to the previous quarter. This collapse is especially significant if household consumption is observed, which contracted by 3.7%. This debacle was only partially offset by the increase in consumer spending by public administrations (1.3%).

Spanish GDP details in Q1, 2022. Source: INE.
Spanish GDP details in Q1, 2022. Source: INE.

The fall in consumption is also perceived in the quarterly decrease in imports of goods and services, which fell by 0.5%. On the other hand, exports increased by 3.4%.

Gross capital formation (or investments) increased by 2.4% compared to the last quarter of 2021.

Despite this sharp slowdown, Spanish GDP continues to post positive results in year-on-year terms. Compared to the same month in 2021, the Spanish economy has grown by 6.4%. However, such high growth is due to the fact that it is compared to a quarter in which Spain was immersed in the restrictions derived from the coronavirus pandemic.

Spanish economy growth slows down as domestic consumption collapses