Spain's economy slows due to slowing external demand: GDP grows 2.8% in the first quarter

Spain's economy is beginning to lose some of its momentum, although it continues to grow at a much faster rate than the rest of the eurozone. GDP registered a 0.6% growth in the first quarter compared to the previous quarter in terms of volume, slightly below the 0.7% estimated by the market. This rate was one-tenth lower than that of the fourth quarter of 2024. The year-on-year GDP growth was 2.8%, compared to 3.3% in the previous quarter . Domestic demand contributed 3.2 percentage points and external demand contributed -0.4 percentage points: the result of these two contributions is the aforementioned 2.8% growth, five-tenths less than in the previous quarter. Hours worked increased by 2.1% year-on-year, and employment in terms of full-time equivalent workers increased by 2.9%—compared to 2.5% and 2.2% in the previous quarter.

Thus, Spain's GDP registered a year-on-year growth of 2.8% in the first quarter of the year , representing a slowdown of five-tenths of a percentage point compared to the previous quarter, according to data published by the National Statistics Institute (INE). This slight slowdown reflects still-solid growth, but with signs of a loss of momentum compared to the end of 2024.

Domestic demand was the main driver of the economy, contributing 3.2 percentage points to year-on-year GDP growth. In contrast, external demand subtracted 0.4 points, weighed down by the performance of exports and imports. Everything suggests that the engine of the foreign sector may be starting to show signs of exhaustion, with growth much lower than in the first half of 2024 (although in quarterly terms it shows an improvement, which may seem somewhat contradictory).

In terms of demand, final consumption expenditure grew by 3.4%, three-tenths of a percentage point less than in the previous quarter. Within this category, household consumption moderated slightly to a rate of 3.5%, while public administration spending increased by 3.1%, seven-tenths of a percentage point below its previous pace. Meanwhile, gross capital formation improved slightly, with growth of 3.3%, one-tenth of a percentage point higher than in the previous quarter.

The foreign sector performed weaker (both exports and imports lost momentum). Exports of goods and services grew by 2.1% year-on-year, 1.1 percentage points less than in the last quarter of 2024. Imports, meanwhile, increased by 3.6%, registering a slowdown of three-tenths of a percentage point. From a supply perspective, all major sectors of activity posted positive year-on-year rates. Gross value added in industrial branches rose by 2.4%, with manufacturing growing by 2.5% . Construction also showed progress, with an increase of 1.8% compared to the first quarter of the previous year. Services grew by 3.3%, while primary sectors, which include agriculture, livestock, forestry, and fishing, recorded the largest increase, at 5.5%.

When analyzing quarterly data, domestic demand remained the main driver of quarterly growth, contributing 0.4 points to GDP growth , while external demand added 0.2 points. Among the demand components, household final consumption expenditure increased by 0.4% and general government expenditure by 0.2%. Gross capital formation, which reflects investment, also advanced, rising 0.6% compared to the previous quarter.

From a foreign trade perspective, the quarterly data show an improvement that contrasts with the year-on-year figures. However, this quarterly improvement could simply be a temporary improvement that does not mark a trend, although this will not be known until new GDP data are published. Exports of goods and services rebounded strongly, recording a quarter-on-quarter rate of 1%, nine-tenths of a percentage point higher than in the fourth quarter. Meanwhile, imports grew by 0.7%, slowing by six-tenths of a percentage point .

Regarding supply, all major economic sectors recorded positive growth rates. Industrial sectors grew 1.1% quarter-on-quarter, with manufacturing accelerating its pace to 0.8%. Construction increased 0.4%, although it suffered a notable slowdown of 2.2 points compared to the previous quarter. The services sector also moderated, with growth of 0.3%. The biggest surprise came from the primary sectors, which rebounded 7.1% after having fallen 0.7% in the previous quarter.

This data comes a week after the International Monetary Fund (IMF) sharply raised its growth forecasts ( due to the carryover effect ) for the Spanish economy. The IMF's latest economic outlook, published last Tuesday , reflected a rise of two-tenths of a percentage point for Spain, which now leads European growth, with an expected increase of 2.5%, although it is likely to slow down and match the regional average by 2026. In contrast, the IMF lowered its forecasts for Germany, France, and Italy within the eurozone, as well as for the United Kingdom, which will grow by 1.1%, half a percentage point below the last forecast. It also lowered its global growth forecasts for the United States and China.

This economic slowdown occurs in a context of job losses in the first months of the year. The labor market had been the engine of growth that has kept activity well above European levels in recent quarters. The Spanish economy has performed well despite the labor market starting the year on the wrong foot... that is, losing jobs in net terms. The labor market began 2025 with 92,500 fewer employed people and 193,000 new unemployed, which has led to an increase in the unemployment rate to 11.36%, when at the end of 2024 this indicator had fallen below 11% for the first time in 16 years. The data from the Labor Force Survey (EPA), published this Monday by the National Institute of Statistics (INE), show a trend in employment in the first quarter marked by the absence of the stimulus of Easter, celebrated in April. The total number of employed people stood at 21,765,400 at the end of March, and the number of unemployed stood at 2,789,200, following the worst first quarter for unemployment in the last 12 years.

The beginning of the year typically sees a negative labor market performance due to the high seasonal load of the period, mainly due to the end of the Christmas season. Furthermore, on this occasion, between January and March, there were no additional hiring plans for the Easter long weekend, which, above all, boosts the hospitality and services sectors—although last year's job creation had no positive effect.