The Spanish economy never ceases to surprise. Despite the dark clouds, the uncertainty and the threats of a slip, it not only holds on, but does so better than expected. The latest national and international estimates confirm this: Spain will be the large country in the eurozone that will have the best performance this year, above 2%, although in a context of generalized slowdown. In fact, the performance is more surprising if one considers that the largest economies in the area have grown sluggishly and will continue to drag their feet for some time. Behind this exploit There are many reasons with different weight, but that have all worked towards the same objective, from the strength of the services sector, with tourism as the jewel in the crown, to the undaunted march of the labor market towards record membership numbers.
“The Spanish economy is going like a rocket,” the President of the Government, Pedro Sánchez, even said a month ago. The reality is that it is no longer growing at the skyrocketing rates set after emerging from the pandemic, above 5%, but the vigor has not been lost. “What surprises most is strength,” says Matilde Mas, professor and director of International Projects at the Valencian Institute of Economic Research (IVIE). Neither inflation, nor the rise in interest rates or the rise in the price of raw materials have been able to withstand the pull of the Spanish economy. Already in 2023, reality had been somewhat different from the forecasts: the GDP grew by 2.5%, leaving the forecasts at the beginning of the year that projected just over 1% on empty paper.
The story seems to be repeating itself in the coming months. The Bank of Spain has just improved its forecasts for the year by four tenths, to 2.3%. Before, it had been the turn of the IMF (2.4%), and the European Commission (2.1%). In all cases, the rates are above the Government’s estimate (2%). “The improvement in forecasts is fundamentally explained by the change in external demand,” explained Rafael Doménech, head of Economic Analysis at BBVA Research, on Friday, the last organization to update its projections for 2024—and to improve them—: an advance of 2 ,5%. “At the same time, the potential for job creation is maintained,” added the economist. Below, some of the keys behind the Spanish phenomenon are analyzed.
Tourism. If the economy were a work of architecture, tourism would be its keystone. He accumulates record after record not only thanks to the classic hook of sun and sand; It also increases the attractiveness of other destinations that help deseasonalize activity and maintain a constant flow of visitors. Last year, 85.3 million foreign travelers arrived, a figure never reached before – and one that is expected to be surpassed at the end of this year – and the weight of the sector on the GDP was 12.8%, the highest percentage in the historical series. “Behind all this there are gains in competitiveness,” said Miguel Cardoso, chief economist for Spain at BBVA Research in the presentation of the study Spain Situation.
In fact, services are pulling the wagon with unexpected force thanks to this marked prominence of tourism, which is being the driver of the sector’s exports. BBVA Research has dramatically updated its growth forecasts for services exports for the year, from 3.3% to 10.1%—those for goods are flat. “The good performance of the Spanish economy is due to a double factor,” says Raymond Torres, director of Economic Situation at the Funcas analysis center. “On the one hand, the competitiveness that has facilitated the pull of the foreign sector. Tourism, very surprisingly, and also non-tourist services, have been the main architects.”
Public spending. The consumption of public administrations is another factor that Torres points to as a great driver of growth. At the end of last year, it dragged activity upwards, compensating for private investment that has been in the doldrums for some time, partly slowed by rate increases, and household consumption that has been weakening in the last months of 2023. The Last year it accounted for up to a third of GDP growth—0.8 tenths of the 2.5% that the economy grew—a figure that has raised suspicions because growth with so much weight in public activity is hardly sustainable in the long term.
“Public spending is one of the elements that explains why we have grown more than Europe, but at the beginning of this year its contribution has been smaller,” says Ángel Talavera, chief economist for Europe at Oxford Economics. “Now we expect similar growth, but with a somewhat different composition: less public spending, more investment and private consumption. It is more balanced, because the contribution of the public sector would be more in line with its weight in the economy, which is approximately 20%,” he points out. Judith Arnal, senior researcher at the Elcano Royal Institute and the Brussels think tank CEPS, thinks the same: “The growth rates of public consumption were quite high and gross fixed capital formation, despite being in a context of European funds, It just hasn’t taken off. But the quarterly national accounting data for the first quarter of 2024 give an image of a break with that trend. It will be necessary to see in the coming quarters if this composition has been something exceptional, or if there has really been a change.”
European funds. Despite how difficult and slow its execution is being—both in Spain and in other countries—its potential is overwhelming. And not only because of the huge amount of money they represent, some 160,000 million in aid and credits, which make Spain the largest European recipient along with Italy and which are expected to translate into transformative investments. The conditionality with which they have been granted also has its weight. “The reforms part is essential,” emphasizes Arnal.
This same week, Brussels has unlocked the fourth Next Generation payment for Spain, of 9,842 million. There are still about 32,000 million in non-refundable transfers to be received, in addition to loans for 80,000 million. Paolo Gentiloni, EU Commissioner for the Economy, has stated that Spanish GDP could grow by around 3.5 points next year thanks to these resources. Its final impact, however, is still difficult to discern.
Working market. The strength that the labor market began to exhibit after the pandemic—and the approval of the labor reform—is another element that has caused astonishment. In May, Social Security affiliates reached a record of 21.3 million people, the highest number since records began. The good tone of employment can also be analyzed in comparative perspective. Spain concentrated a third of the jobs created in the area between the end of 2022 and the third quarter of 2023, according to Eurostat. Tourism has been one of the levers, along with another important variable: immigrants, who are already arriving at rates similar to those recorded during the real estate bubble.
Last year, 40% of the jobs generated in Spain came from foreigners. “Population growth may be one of the factors behind the good economic data,” emphasizes Daniel Fuentes, professor of Economics at the University of Alcalá and director of Kreab Research. “Almost all of the demographic increase is explained by immigration. It comes mainly from Latin America and is more qualified than the wave that arrived between 2004 and 2007.” Matilde Mas, from IVIE, provides another element: “Spain already has procyclical labor productivity, typical of developed countries. Before we went the other way around: productivity increased because we left workers stranded when things went wrong. Now the gross added value is growing more than the number of workers. We have to see if the trend consolidates.”
Energy. The containment of energy prices thanks to greater renewable generation is another differential element that has given wings to the economy or, rather, has punished it less and has marked the difference with other large European economies. “The energy crisis has dealt a very strong blow, especially in energy-intensive sectors. Germany is the example,” says Talavera. The European locomotive, highly dependent on fossil fuels and Russia, has been defeated by the energy crisis that erupted after the invasion of Ukraine. “In Spain, in addition, we have a smaller industry and a larger service sector. We have come out well.”
Risks
The Spanish economy now has more lights than shadows, but there are always risks that arise both inside and outside national borders and are not always linked to the activity. Geopolitical tensions, for example. Also internal political instability, if it persists. “This is not the case now, but it could erode confidence in the country somewhat, for example in terms of risk premiums,” says Talavera.
Among the more purely economic factors, analysts focus on the weakness of investment and low total factor productivity. “Our production model continues to depend on the incorporation of the workforce and not so much on productivity. It is a medium and long term problem. Especially considering that business investment, which is an element that favors growth, remains below pre-pandemic records,” Torres reflects. The slowdown in productivity also lurks in the rest of Europe, but Spain has an additional problem. “A high weight of low-productivity sectors, and low productivity in all sectors,” points out Mas, from the IVIE, who recalls that the unemployment rate, although it is at very low levels for Spain (12.3%), is still very high by European standards.
Housing, with a supply well below demand that pushes prices up, is another element that generates concern and can be “a bottleneck for economic growth, in addition to the implications it may have in terms of social justice.” ”says Fuentes. Tourism, for its part, does not have the capacity to continue growing with the same intensity and can deduct points from growth, prices will take time to fall to the set objective of 2% and the large imbalances in public accounts generated by the pandemic. All in all, and although somewhat less, the economy will continue to grow next year.
Follow all the information Economy and Business in Facebook and xor in our weekly newsletter
Subscribe to continue reading
Read without limits
_
#Tourism #boom #employment #boom #keys #explain #Spain #growing #rest