Spain’s economy exceeds expectations: growth higher than eurozone as a whole
Spain’s economy continues to grow, far outstripping post-pandemic expectations and positioning itself as one of the most dynamic economies in the eurozone. This is one of the findings announced in the chapter about the current climate in the Esade Economic and Financial Report for the second half of 2024, produced with support from Banco Sabadell and edited by Toni Roldán, director of EsadeEcPol. This chapter, by the Esade professor Josep M. Comajuncosa, and Manuel Hidalgo, a professor at Pablo de Olavide University and senior fellow at EsadeEcPol, forecasts growth of between 2.2% and 2.3% for Spain’s economy in 2024, and explains how its resilience over the last two years is due, on the demand side, to higher exports and also greater spending in the public sector and, particularly, the private sector.
The authors attribute the increase in consumer spending to the dynamics of the job market, greater purchasing power and family savings, the measures taken in response to the crisis and the government’s fiscal efforts in the realm of public-sector outlay. They regard the positive increase in exports to be the outcome of the definitive recovery of tourism and services with high added value, and on the supply side, the comparative ability to tackle rising energy costs during the crisis in the wake of Russia’s invasion of Ukraine. In this respect, the authors of the report underline Spain’s natural gas storage capacity and its roll-out of renewable energies.
Three challenges facing the Spanish economy
The medium-term scenario that lies ahead for the Spanish economy is not, however, without risk, as reflected in the Esade report for the 2nd half of 2024, which pinpoints three challenges: the deviation in terms of productivity compared to the other EU countries, the dearth of private investment (although it has increased slightly in recent months due to lower interest rates and greater optimism) and the fiscal landscape.
As regards the fiscal challenge, the authors point out that although Spain is on the road to reducing its deficit, this is driven by larger tax receipts generated in turn by inflation and economic activity, i.e., by higher taxes and not a structural decrease in expenditure. They also reveal that public debt continues to be a major cause for concern, because, despite having fallen, it remains high compared to European levels, making Spain more vulnerable to future economic shocks and restricting its fiscal response to future crises.
On this last point, Sofía Rodríguez, deputy general director and chief economist at Banc Sabadell, says that “it’s essential for Spain to carry on improving the health of its public accounts in order to ensure some fiscal wriggle room against a backdrop of global economic and geopolitical uncertainty and the downsizing of the European Central Bank’s balance sheet”. Furthermore, added Toni Roldán, director of EsadeEcPol and the Esade Economic and Financial Report, “it’s important to take advantage of the economy’s excellent performance and the extraordinary income generated by inflation and European funds in order to resume the agenda of reforms still pending and galvanize the secular stagnation of productivity.”
Soft landing for the global economy
As the Esade Economic and Financial Report explains, the international scenario that has materialized is characterized by a “soft landing” thanks to falling inflation and modest but positive growth figures which are more robust in the USA than in the eurozone, the UK and Japan. This evolution is the result of several factors including the increase in the workforce in certain economies, changes in real estate markets, high growth in emerging countries, tech developments, and financial conditions that have remained lax despite high interest rates.
As for the coming months, the global economy will continue to grow at lower rates than in the years before the pandemic due to the persistence of restrictive monetary policies in the leading developed countries and fiscal policies that are increasingly ineffective in bolstering growth. In this scenario, the performance of the eurozone – the global economy that has grown the least – will improve at the end of the year thanks to higher household spending driven by lower inflation, higher wages and better trade terms – a very similar situation to what the British economy will achieve. Meanwhile, the United States will maintain a healthy growth rate and, with inflation still higher than planned, the Federal Reserve will approach the first reductions in the official interest rate cautiously. In China, the authorities will continue to tackle the challenge of an orderly correction of the real estate sector while the rest of its economy continues to grow at a relatively stable pace, albeit with the risk of lower growth rates.
Balanced international risks
The risks to said growth – which the authors of the report describe as ‘balanced’ in keeping with IMF criteria – include higher prices of oil, gas and raw materials, a more sluggish than expected reduction in inflation and its consequences for the job market and interest rates – and the evolution of the Chinese economy, upon which international trade depends to a great extent. The last source of risk is the increasingly fragmented global economy which could cause international capital flows and direct investment abroad to fall, thereby reducing rates of growth and the pace of adoption of new technologies, both of which could jeopardize the trade in goods between blocs. This situation would also lead to losses in global production and greater volatility in raw materials.
The thirty-fifth edition of the Esade Economic and Financial Report, “Implications of a mega electoral year”, produced in conjunction with Banco Sabadell, features articles by Antonio Barroso, eurozone managing director at Teneo and associate professor at Sciences Po; Alicia García Herrero, chief economist for Asia Pacific at Natixis and senior fellow at Bruegel; Ángel Saz-Carranza, director of EsadeGeo and professor at Esade; Mateu Tomin, researcher at EsadeGeo; and Vicente Bermejo, associate professor of Finance at Esade and member of GREF.
