MADRID – Since 2020, the Spanish economy seems to have transformed. Although the fundamentals of the national economy have hardly changed, global changes have placed Spain in a favourable position.
A position so favourable that Spain could lead the economic growth among the major developed countries in the next two years. Recent forecasts from Brussels and the IMF already placed the Spanish economy at the top, but now the OECD has confirmed this with an even more optimistic upward revision.
After the worst recession among the advanced countries during the covid pandemic, Spain is now becoming the major economy that will grow the most in the Eurozone relative to virtually all major advanced countries. Furthermore, the OECD has placed Spain’s growth above 2% for this year, while it will be just below that figure in 2024. Economists from this institution emphasise that “growth has shown resilience”.
The OECD has revised Spain’s growth upwards by four-tenths from its latest forecast to 2.1% and by two-tenths for 2024 to 1.9%. Despite this remarkable improvement, growth will be lower than the extraordinary figures of 2022 and 2021, when the national economy grew by 5.5% thanks to the rebound effect caused by the Covid recession.
Spain leads the growth
Spain will lead growth among the major OECD economies, surpassing on an annual basis in 2023 and 2024 economies such as the US, France, Germany, Italy, the UK, Canada and the Netherlands. In addition, Spain’s growth rate will be more than double that of the Eurozone in 2023 and four-tenths higher in 2024.
The weaknesses that came to light during the covid crisis in 2020 (catering, tourism, etc.) precisely allow Spain to grow faster than the average. Although the OECD is not commenting on or assessing the early elections that will take place on July 23, which could trigger a change of government and economic policy.
Engines of the economy
“Lower inflation and a resilient labour market will support household consumption. Stronger external demand will support export growth. Prospects of better demand will boost business investment despite rising borrowing costs,” says the OECD report. Despite the sharp rise in interest rates in the Eurozone – 375 basis points – last summer, Spanish companies continue to invest in and recruit capital. Furthermore, GDP is expected to accelerate in the second quarter of the year, precisely thanks to this component.
When companies increase their investment, it is because they expect in some way to increase production. This is in stark contrast to the pessimistic mood that has engulfed the global economy in recent months, which speaks of an impending recession in the US, while Germany is already in its crisis.
With all of the above and against the dominant forecasts of recent months, “growth has shown the country to be resilient. In the face of a challenging environment in the context of Russia’s war on Ukraine, the Spanish economy has held up surprisingly strong “, emphasises the OECD.
GDP increased by 0.5% in the first quarter of 2023 compared to the previous quarter and was 3.8% higher than a year ago. Business and consumer confidence has improved since the fall, although consumer confidence remains very low.
Strong labour market
In addition, the labour market shows unexpected dynamism, with job growth of 1.3% in the first quarter of 2023. The unemployment rate fell slightly to 12.7% in April 2023.
Tasks for Spain
However, the OECD always leaves ‘tasks’ for governments and this time is no different. The organisation recommends that Spain implement reforms to “increase productivity growth and reduce dependence on fossil fuels… As long as good investment projects are selected and reforms are implemented, EU funds can increase growth potential. The effective implementation of reforms that address the internal fragmentation of product markets, which can act as barriers to the entry and growth of innovative firms,” concludes the OECD.