The Spanish economy showed signs of slowing down in the second quarter of 2018, with GDP growth of 0.6% quarter-on-quarter, private consumption and exports declining, and the consumer packaged goods sector shrinking. The labor market also cooled as social security affiliations fell and unemployment rose. Tourism declined significantly in July along with signs of slowing in major European economies. Inflation remained high at 2.2% driven by electricity prices, hampering competitiveness.

1. Signs of slowdown set in for the Spanish economy
• GDP
In Q2 2018, the Spanish economy expanded
by 0.6% quarter-on-quarter, one-tenth less
than in Q1, and 2.7% year-on-year, after
narrowly exceeding 3% in the last three years.
This evolution is explained by the
deceleration in private consumption (+0.2%
vs 0.6% average in 2017) and by the drop in
exports (-1%), a factor that subtracts two-
tenths of a percentage point from growth.
• Consumer packaged goods (CPG) and
retail trade
In the first semester of 2018, the CPG sector
shrunk for the first time since 2014 (-0.9% vs
+1.8% in the same period of 2017). Nonetheless,
turnover increased by 3%, owing to the rise in
prices (+3.9% vs 1.2% in the first half of 2017).
Inaddition,retailtradeatconstantpricesinJuly
fellby0.4%year-on-year(-0.1%inJune),mainly
due to the loss of purchasing power caused by
the surge in inflation.
• Cooling labour market
In August, primarily due to the end of the
summer season, Social Security lost 202,996
affiliates compared with July (-1.07%), reaching
18,839,814affiliates.Itistheworstdatarecorded
for August since 2008, although in year-on-year
terms the upward trend over the last four years
continues to push through with an increase of
2.9%.
Whereas, registered unemployment also
recorded the highest increase for August since
2011, increasing by 47,047 people to 3,182,068
(5.92% less in year-on-year terms).
• Tourism
In July, 9.98 million international visitors
arrived in Spain, 4.9% fewer visitors year-on-
year, representing the biggest drop since April
2010. This figure is mainly explained by:
− The peak geopolitical instability in
Turkey, Tunisia and Egypt.
− The first signs of a slowdown in the main
tourist sending economies such as the
United Kingdom, France and Germany.
− Good weather conditions in Northern
Europe.
CPI flash estimate (INE)
In August, the year-on-year variation of the
CPI remained at 2.2%, predominantly due to
soaring electricity prices.
For the fourth consecutive month, the
Harmonized Index of Consumer Prices
(HICP) exceeds the euro area average (2%),
proving detrimental to the competitiveness of
the Spanish economy.
3 3.1 3.1 3.1 3 2.7
0.8 0.9 0.7 0.7 0.7 0.6
2.9
-0.2
-1
0
1
2
3
4
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
% YoY change % quarterly change
Domestic demand contribution External sector contribution
2.2
1.9
1.5
0.3
-0.2
-0.1
-0.4
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18
2.9
2.6
2
0.7
2.2
1.8 1.9
1.5
1.3
2
0
1
2
3
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Spain Euro area
Economy…
at a glance September 2018
Evolution of GDP, Q2 2018
%
Source: Círculo de Empresarios based on INE, 2018
General Index of Retail Trade at constant prices
July, % year-on-year change
Source: Círculo de Empresarios based on INE, 2018
Evolution of Harmonized Index of Consumer Prices
% year-on-year change
Source: Círculo de Empresarios based on INE, 2018

2. ‘Economy at a glance’, a publication of the Círculo de Empresarios produced by its Department of the Economy, contains information and opinion from
reliable sources. However, the Círculo de Empresarios does not guarantee its accuracy and does not take responsibility for any errors or omissions. This
document is merely informative. As a result, the Círculo de Empresarios is not responsible for any uses that may be made of the publication. The opinions
and estimates of the Department can be modified without prior warning.
www.circulodeempresarios.org
Euro area unemployment
(Eurostat)
In July, the euro area unemployment rate
remained at 8.2% of the active population,
0.9 pp lower in year-on-year terms, reaching
its lowest level since November 2008.
Greece and Spain continue to register very
high unemployment rates, while in
Germany and the Netherlands they remain
below 4%.
Emerging market currencies
The macroeconomic imbalances of
Argentina and Turkey (high levels of debt
and inflation) have been accentuated by the
depreciation of their currencies since the
beginning of the year by 51.1% and 43.1%,
respectively.
In Argentina, financial instability has forced
its central bank to hike interest rates to
60%. Moreover, Mauricio Macri has
announced a path of fiscal consolidation
aimed at achieving budget balance in 2019
and a surplus of 1% in 2020.
Among the measures of this plan are:
− A reduction in public investment (0.7
points of GDP)
− Abolition of subsidies (0.5 points)
− A cut in salaries and public operating
expenditure (0.2 points)
− Imposition of tariffs on export sectors
that reaped the most benefit of the
depreciation of the peso, as is the case
with processed food.
In Turkey, the strong depreciation of the lira
has accelerated, well above expected, the
growth of core inflation standing at 17.2%
year-on-year in August (15.1% in July)
which is more than double the upper limit of
the target band defined by its central bank
(3-7%).
Economy South Africa
In Q2, South Africa's economic growth fell
by 0.7%, accumulating two quarters of
contraction. For the first time since 2009,
the second largest economy in the African
continent enters a recession1
, which has
accentuated the loss of value of the rand,
with an accumulated depreciation of over
19.8% against the dollar so far this year.
3.43.84.95.96.26.87,68.29.210.4
15.1
19.5
6.17.3
9.4
14.716.3
20.3
16.816.6
20.4
30.8
33.4
39.7
Germany
Netherlands
Austria
Ireland
Belgium
Portugal
Finland
Euroarea
France
Italy
Spain
Greece
Total < 25 years
40
50
60
70
80
90
100
110 ARS/USD TRY/USD
CPI YoY change (%)
25
10.4
31.2
15.9
Jan-2018 Jul-2018
Argentina
Turkey
60
17.75
0
20
40
60
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Argentina Turkey
4.4
1.7
-2.1
0.2 0.3
-0.8
3.6
1
0.4
-0.5
2.9
2.3
3.1
-2.6
-0.7
-3
-2
-1
0
1
2
3
4
5
Unemployment in the main euro area economies, July 2018
% active population
Source: Círculo de Empresarios based on Eurostat, 2018
Sources: Círculo de Empresarios based on Central Bank of Turkey
(TCMB), Central Bank of Argentina and INDEC, 2018
Evolution of GDP
% quarter-on-quarter change
Source: Círculo de Empresarios based on Statistics South Africa, 2018
Evolution of emerging market exchange rates
100 = January 1st, 2018
1 Arecessionis technicallysaidtooccur whenrealGDP has declinedforover
twoconsecutive quarters
Interest rates
%