Spain faces countless challenges in the medium to long term: low productivity, high public debt, a dysfunctional labor market, pensions with an uncertain future… However, the Spanish economy has shown that it can move forward even in more adverse circumstances. . A good example of this is the Covid crisis, which has directly hit the fundamentals that support the Spanish economy. More than four years later, it can be said that Spain’s economy has been one of the ones that has recovered the best among the euro’s major economies, with a “comeback” that can be seen in the JP Morgan chart that prompted the news. After the eurozone’s worst recession, Spain’s GDP has managed to grow strongly, creating large jobs and avoiding the imbalances of the past.
In 2020, Spain suffered a historic recession with an 11.2% fall in GDP, the largest in the entire eurozone. The forecasts were catastrophic for the country’s economy: Covid frontally attacked tourism and industries requiring human contact, a blow that promised to be lasting and leave lasting scars in Spanish production fabric. Countries like Germany or France, with stronger industries and more diversified economies, weathered the crisis better in the very short term.
Four years later, tourism is stronger again, the hospitality industry does not find enough staff to meet demand, and the industry that still exists in Spain is performing better due to its specialization and low dependence on China (which is experiencing a particular crisis). The result can be seen in the chart: a recovery that has led to a recovery in GDP when analyzed from the end of 2019, as JP Morgan noted in its latest weekly report. Spain’s economy has overtaken those of France and Germany (if we take into account GDP growth since 2019)
and it is now heading straight for Italy to become the largest European economy to grow the most since 2019.
After a fall of 11.2%, a recovery occurred in mid-2021. GDP growth of 6.4%, followed by 5.8% growth in 2022. (here Spain has already recovered pre-pandemic GDP levels) and this continued in 2023 with growth of 2.5%. The recovery has been accompanied by strong employment growth, with more than two million jobs created since 2019, according to the latest Eurostat data.
JP Morgan revised Spain’s GDP upward
Now the upward revision of GDP does not stop. The latest forecast was from JP Morgan, which revised Spain’s GDP upward by 0.7 points each week, raising its forecast from 1.5% for this year to 2.2%. In addition, it also revised growth for 2025 upward, leaving it at 1.5%, down from the 1.3% previously forecast. JP Morgan talks about ‘unexpected GDP growth’.
After good GDP data for the first quarter of the year, CaixaBank Research also announced that they may revise their forecasts for Spain upward: “The improvement in economic performance at the beginning of the year, combined with various driving factors, will soon force us to improve the forecast scenario CaixaBank Research. It currently projects growth of 1.9%. But after the publication of these data, and if there are no new turns in the international scenario, The Spanish economy could grow close to 2.5% this year. and thus maintain a rate of progress very similar to last year.
Just as Covid was a direct attack on the fundamentals of the Spanish economy, a sort of “perfect storm,” the situation today is radically different. If we compare the Spanish economy with those of the larger eurozone countries, the stars seem to have aligned in favor of a national economy that benefits from its sectoral structure, from the desire to travel and enjoy developed societies post-Covid (tourism). and other factors such as slowing economic growth in China. The latter does not benefit Spain, but at least it does not harm the national economy, as is the case in other eurozone countries.
Fortune smiles on Spain
More specifically and with the data at hand, it can be said that the higher growth rate of the Spanish economy is largely due to differences in the sectoral structure, according to a report published by the Bank of Spain, in which it explains exactly this better performance of the economy. Economy of Spain. In particular, this appears to be due to the higher contribution to gross value added (GVA) of market services, especially those associated with the tourism sector such as passenger transport, hospitality and leisure (11.4% compared to 7.3%). ANDThese tourism services continue to be in very high demand following the resumption of economic activity. post-pandemic, as evidenced by international tourist arrivals and spending data for the 2023 summer season.
Moreover, the share of manufacturing, which has generally been weaker than services, is lower in Spain (12%) than in the euro area as a whole (16.5%) and significantly lower than in Germany (21.7%). %). Most notable above all is the evolution of the most energy-intensive sectors4, which have shown greater weakness in recent quarters due to rising energy prices since 2021. However, in Spain this evolution was less unfavorable. than in the euro, perhaps because the German industrial sector was more directly exposed to shocks caused by restrictions on the purchase of Russian gas.
In addition, the Bank of Spain highlights that the weight of the automotive sector (which has been hit hardest by bottlenecks in the global supply chain and growing competition from China in the production of electric vehicles) in value added is lower in the case of the Spanish economy (1.1% of total GVA) than, for example, in Germany (4.4%).
Additionally, global economic activity has been sluggish in recent quarters. This is especially noticeable in China. Spain’s limited influence on China, which has been a problem in the past, may today partly explain the better performance of our overseas sector, as explained by the Bank of Spain.
Overall, Spain’s economy has been growing above the eurozone average for many years, and this trend is expected to continue into 2024 and at least 2025. What suffered the most from Covid is now the engine of the eurozone. However, in the second half of this decade, it would be normal for Spain’s growth to catch up with that of the rest of the eurozone, especially as the labor market loses strength and external dynamics normalize. For undefined period).