Spain's Q3 GDP growth eases, but inflation is the ECB's bigger headache

• Spain's third-quarter preliminary GDP came in at +0.6% quarter-on-quarter, matching expectations
• The prior reading was +0.7%
• On an annual basis, preliminary GDP rose 2.7%, in line with forecasts, up from 2.6% previously

This is only a preliminary release, so there is limited detail beyond the top-line numbers.

The quarterly figure does suggest a slight cooling in Spanish economic expansion during the third quarter, though only marginally. Among the euro area's larger economies, Spain continues to carry a relatively optimistic outlook for the region.

The real concern, however, is that price pressures in Spain are becoming increasingly problematic. Headline annual inflation in October is approaching 5%, while core annual inflation remains above 3%. These levels are well above the ECB's 2% target and are far from what policymakers would consider acceptable.

The Spanish GDP release is unlikely to unsettle markets on its own. But a modest slowdown, combined with weak results from France and possibly Germany later, could intensify talk of stagflation risks in the euro area, especially when paired with today's inflation figures.

Traders may still lean toward inflation risks prompting ECB action in December. Yet if growth momentum keeps deteriorating, it could be only a matter of time before the narrative shifts toward stagflation concerns. So, it is worth keeping an eye on that.