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Weakness in Spanish household spending to persist

Household consumption has been weaker in Spain than in other big euro-zone economies, reflecting the slow rebound in tourism, more limited fiscal support and higher inflation. The latter is set to persist, while rising interest rates are a new headwind. So spending is set to recover only slowly.

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28 July 2022

Weaker consumer outlook to delay Spanish retail rally

A rebound in tourism will cushion some of the blow to Spanish prime retail demand caused by falling real incomes this year. But once inflation eventually eases, we expect rent growth to outperform other European markets, supported by a rebound in consumer spending and relatively low online penetration, albeit this rebound is now unlikely until later in 2023.

25 July 2022

Germany and Spain Flash Inflation (Jun.)

The fall in inflation in Germany and the increase in Spain in June largely reflect temporary factors and will not alter the consensus view at the ECB that interest rates need to be increased quite rapidly.

29 June 2022
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Rising interest rates to speed up property correction

The weaker economic outlook and larger increases in interest rates are expected to weigh on property performance. With valuations under increasing pressure from sharply rising bond yields, we think that property yields will reach their troughs this year and rise by a cumulative 35bps at the all-property level over the following few years. Rental growth is unlikely to be able to provide much offset to prevent falls in capital values in 2023-24, with structural changes dragging on the retail and office sectors. This will leave annual total returns languishing in low single digits on average over the forecast. Beyond 2022, we think retail will overtake industrial as the best performing sector, while offices are expected to underperform.

Germany and Spain Flash Inflation (May)

German and Spanish inflation data for May provide more ammunition for those who will argue at next week’s monetary policy meeting that the ECB should exit negative interest rates promptly, rather than at the leisurely pace advocated by Bank’s Chief Economist Philip Lane.

Gas price cap won’t solve Spain’s inflation problem

The cap on the wholesale natural gas price for the Iberian market will result in a bigger fall in energy inflation in Spain than we had previously expected. It might also dampen underlying price pressures, but the big picture is that core inflation will remain very high despite the weak post-Covid economic recovery.

Germany & Spain Flash Inflation (April)

The further rise in headline inflation in Germany, and increase in the underlying rate in Spain, suggest that euro-zone inflation will come in around 7.4% in April. This will do nothing to change the growing sense at the ECB that they need to raise rates sooner rather than later. A July hike seems most likely.

Short-term boost to Spanish office rents

We think that a rebound in employment will help prime office rental growth in Barcelona and Madrid to outperform the euro-zone this year. But this is likely to be short-lived, as the shift to remote working weighs more heavily on office demand in Spain than in most other European markets in the coming years.

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