Spain's economy expands: Why is it beating its European peers?

According to final data released on Tuesday by the National Statistics Institute (INE), Spain's fourth-quarter economic output grew 2.0% compared with the same quarter a year ago, while annual growth was 1.9% in the third quarter.

The latest data from INE confirms a preliminary report released in January.

"We'd previously seen signs that growth was picking up as several soft indicators (such as business sentiment) improved toward the end of 2023 – but this growth far exceeds expectations. GDP came in much higher than market expectations of 0.2% QoQ," analysts at ING noted after the preliminary report.

ING also highlighted that the GDP report was positive across the board. 

"After significant growth in the third quarter, which returned household consumption to pre-pandemic levels, it continues to fuel economic growth in the fourth quarter. With inflation lower than wage growth, real purchasing power is increasing again, boosting consumption."

Spain's investment component also grew in the fourth quarter of last year, despite the headwinds from higher interest rates.

Meanwhile, investment in greening and digitalisation - and the continued rollout of NGEU funds - also continue to support business investment in Spain.

Moreover, ING highlighted particularly strong growth in housing demand, which has boosted residential investment. 

"Strong housing demand growth continues to outpace housing supply growth. Finally, government spending also increased and the net trade position improved. Looking at the details by sector, interest rate sensitive sectors such as manufacturing and construction grew strongly in the fourth quarter, against expectations," ING analysts added.

ING said in a note that Spain is outperforming its European peers, like