Published on Friday, June 9, 2023

Spain | What is going on with consumption?

The main component of domestic demand, private consumption, shows declines that are more consistent with a historical contraction of activity than with the expansion we are experiencing.

Key points

  • Key points:
  • A year ago, the consensus of analysts pointed to a recession that did not materialize. However, according to the National Statistics Institute (INE), household consumption would have fallen by 3% between September 2022 and March 2023. In other words, in annualized terms, the fall would be approximately 6%. With the exception of what happened in 2020, this would be the period of greatest contraction observed for this variable since 1980.
  • The decline in consumption can be explained by several factors. First, families have suffered from the increase in the price of energy and food and the generalized increase in the cost of the consumer basket.
  • Since July 2022 and until March, the monetary policy interest rate increased by 350 basis points. This raise in interest rates has meant an increase in the financial burden for households, which has certainly meant sacrifices in their consumption plans.
  • Furthermore, the higher saving rate generated by the decline in consumption, at the same time that disposable income continues to rise, could be reflecting greater uncertainty linked to public policies.

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