Else Beekman
The Bank of Spain has revised its economic growth forecast for the third time this year, now predicting a 3.1% expansion in 2024. This marks a significant improvement from the 1.9% forecast earlier in the year.
The latest adjustment, announced by Governor José Luis Escrivá, reflects stronger-than-expected economic activity in the second half of the year. It is buoyed by public spending, robust tourism, and migration flows alleviating labour shortages.
Projections for 2025 have also been raised, with GDP expected to grow by 2.5% in the first half, though growth is set to slow to 1.9% in 2026.
Tourism and public spending lead the charge
Tourism remains a key driver of Spain’s economic recovery, with visitor numbers expected to reach a record-breaking 100 million in 2024. Post-pandemic shifts in consumer behaviour and pent-up demand have fuelled the sector’s growth, though the Bank of Spain cautions that tourism’s contribution will moderate in the coming years.
Public spending has also played a pivotal role in the revised forecasts. However, the central bank warns that its impact is likely to fade in future quarters, alongside diminishing returns from the tourism sector.
Private investment and consumption lagging
Despite the overall optimism, the Bank of Spain identified areas of concern, particularly private investment and household consumption. Investment remains below pre-2019 levels, hindered by regulatory challenges and economic uncertainty.
Household consumption has also been subdued, with high savings rates reflecting a cautious outlook among Spanish families. Many households perceive a loss in purchasing power despite data showing income gains. The housing market, characterised by rising prices and limited supply, has exacerbated these trends, prompting households to save for future property purchases or hedge against economic uncertainty.
Housing crisis clouds long-term prospects
The housing market remains a significant social challenge, with demand far outstripping supply. Ángel Gavilán, the Bank of Spain’s Director General of Economics, highlighted that housing pressures are driving high savings rates, particularly among renters and investors. While new housing construction is expected to increase, it will do so at a modest pace, limiting the potential for significant relief in the market.
The government has been urged to address the imbalance between supply and demand, which continues to weigh on the broader economy. Without targeted interventions, the housing issue is likely to persist as a barrier to sustained economic growth.
A mixed outlook for the future
While the Spanish economy’s resilience in 2024 has exceeded expectations, questions remain about its ability to sustain this momentum. The Bank of Spain’s upward revisions underscore the strength of public spending and tourism but highlight the need for structural reforms to unlock private sector growth and address long-standing challenges in the housing market.
Also read: Spain and Greece: From Economic crises to growth engines of Europe