Our country’s economy sustains a strong growth rate. The GDP (Gross Domestic Product) increased by 0.8% in the summer, compared to the second quarter, as announced by the INE (National Institute of Statistics) this Wednesday.
As can be seen in the first graph of this information, economic activity does not step on the brakes in Spain quarter by quarter. At the start of the year, GDP growth was 0.9%. In the second quarter, 0.8%. The latter is practically the same increase as in the summer, as we learned this Wednesday.
On October 22, the IMF (International Monetary Fund) revised Spain’s projection for 2024 up by half a point, up to 2.9%, confirming that our country leads the main economies in the world. This forecast could once again fall short. “Given the improvement in activity until September, the growth prospects for 2024 for the Spanish economy could reach 3%, above the estimated average for the Eurozone (0.8%),” recognizes the main business association, the CEOE.
In the third quarter, the INE indicates that the interannual growth rate of activity (compared to the same quarter last year) reached 3.4%, the highest in the last year and a half. In the second quarter, the year-on-year increase in GDP was 3.2%, as can be seen in the second graph of this information.
Significant increase in family consumption
During the summer, the important contribution of private consumption stands out in a context of moderation in inflation. The increase in family spending was 2.8% year-on-year and “is supported by the gain in purchasing power of workers, which increased by more than one point in the last year, and by the positive evolution of employment,” as defended by the Ministry of Economy.
On the other hand, the excellent performance of the foreign sector is “especially significant”, with a year-on-year increase in exports of 5.1%.
The foreign sector is tourism, but not only. Because the National Accounts for the third quarter highlight a notable growth in exports of non-tourist services (consulting, related to technology, communication…), “which in the last year multiplied their growth rate almost fourfold, up to 12.5%,” they add from the department led by Carlos Corpo.
“Spain’s service exports are a success story, and not only thanks to the recovery in travel since the worst moment of the pandemic. “High value-added services have contributed more to the growth of services as a percentage of GDP, which reflects the abundant and well-trained workforce in Spain,” comments Daniel Kral, an expert at the Oxford Economics analysis center, on the social network .
If the third quarter is analyzed by sector, all branches of activity contribute positively to economic growth, with a very relevant contribution from the manufacturing industry.
“The data that we have learned today reflects the strength and balanced growth of the Spanish economy, which day after day is being corroborated by the main national and international organizations,” the Ministry of Economy states.
The good moment of Spain’s economy is transferred to the debt markets, where foreign investors are devouring our bonds since 2022 – this information explains – and also in the arrival of business investment from outside our borders, mainly in renewable energy projects. As reported by the Financial Times this Tuesday“Spain has become the sixth global destination for foreign direct investment, and the third in Europe.”
Inflation remains below 2%
This same Wednesday, the INE has advanced the inflation data for October. The interannual CPI (Consumer Price Index) has risen three tenths to 1.8% this month, compared to the same month in 2023, due to the increases in fuel, electricity and gas prices.
Despite the increase, this month it remains below the ECB’s theoretical target of 2% and, effectively, allows families to recover purchasing power.
The October data is also marked by the increase in VAT on basic foods. This is a process of normalization of this tax that the Government has planned in stages, after lowering it from the start of 2023 to try to moderate price increases in stores and supermarkets.
The INE does not give details of the evolution of food prices in this first preview of the October data. In September, food inflation moderated to 1.8% year-on-year. The October figure will be known in mid-November.
“Spain continues to make the highest economic growth among developed economies compatible with inflation that has moderated significantly in recent months,” the Ministry of Economy points out.
“This is allowing these excellent macroeconomic data to also be transferred to micro data, improving the economic situation and prospects of our companies and families,” they continue from the department led by Carlos Body.
The exceptional nature of Spain in a context of weakness
The context of the eurozone is one of weakness. Germany’s economy is stagnant. Although, in the third quarter, GDP growth was a positive surprise in the main engine of the EU (0.2%) and also in France (0.4%), according to data published this Wednesday.
Spain’s exceptional nature is largely explained by the dynamism of family consumption, which is supported by the moderation of inflation, the reductions in interest rates of the European Central Bank (ECB), and the historic creation of jobs. of work and in the lower precariousness of contracts, both due to the labor reform and the increase in the Minimum Interprofessional Wage (SMI).
Regarding price increases, the IMF estimates that inflation will close the year at 1.9% in Spain and that it will remain at that level on average in 2025.
Meanwhile, despite the increase in employment, our country will continue to be the economy with the highest unemployment rate among the large economies in the eurozone. According to the EPA (Active Population Survey) for the third quarter, the unemployment rate fell to 11.2%, slightly less than double that of the eurozone as a whole.
Taking as a reference the Funcas forecasts, published just before the update of the IMF projections and which glimpse a similar horizon, Spain’s GDP level will exceed the pre-pandemic level by 6.7 percentage points at the end of 2024, that of the end of 2019, and in 2025 at 8.9 integers. Meanwhile, the GDP level of the eurozone as a whole will rise to 4.2 and 5.7 points, respectively.
The headlines and political accusations about our country being at the tail end of the recovery have aged very poorly. A catastrophic story that could only prosper due to the INE’s error in the calculation of the National Accounts (as explained in this information), and that after three historical corrections has still not been completely corrected.
In this scenario, the reactivation of the fiscal rules of the European Union (EU) is a first brake on the economic activity of our country. The Government has already sent its Fiscal and Structural Plan for the next seven years to the European Commission, in which it promises discipline that entails limiting the annual increase in “net primary spending” to 3% on average between 2025 and 2031. Ignoring the technical complexity and the lack of details of the calculation of this new ratio that will be monitored from Brussels, what means is that “public consumption” will no longer be a decisive driver of GDP growth, as it has been from 2020 until this year .
Another engine of our economy is tourism, which will also be one of the factors that will deepen the slowdown in 2025, compared to 2024. Tourism does not have a limit that is imposed, but rather it is a ‘ceiling’, which if has not already been reached, it is very close, which has been reflected in its impact on the large capitals and the main destinations, both due to its pressure on housing prices and the general deterioration of living conditions in those places. .
Other risks for Spain are precisely the difficult access to housing, the weakness of Germany and the eurozone and, on the other hand, an unusual accumulation of family savings. Finally, all experts point out that it is key for business investment to wake up, in which the European funds of the Recovery Plan play a key role.
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