Strength of Spanish economy exceeds all expectations

by Lorraine Williamson
Spanish economy

SpanisMADRID – The Spanish economy stands out in Europe and is on track to exceed all expectations in the first quarter. Moreover, the same is expected to apply for the rest of the year. concludes that the keys to resistance to inflation in the country are as follows;

  • labour reform
  • recovery plan
  • lower energy prices
  • shock measures
  • protection of pensioners
  • increase of the minimum wage

Different factors for success of Spanish economy

The unprecedented response of national and European institutions, first to the pandemic and then to the inflationary crisis and the war in Ukraine, fosters the resilience of households and, to a greater extent, of companies. Despite the successive blows, economic activity in Spain is supported by several factors. GDP (gross domestic product) grew by 5.5% in 2022 and is expected to grow between 1.6% and 2% in 2023. 

The main keys range from the strong growth of corporate profits to the deployment of the Recovery Plan financed with European money. There is also unprecedented job stability in the country. This is thanks to income protection measures (increases in pensions, minimum wages (SMI), the gas ceiling and transport discounts…). It is also thanks to the moderation of energy inflation and finally the good performance of exports. 

Related post: Spanish economy grew by five and a half per cent in 2022 

In Spain, the government presented in October a macroeconomic framework for the growth of 2.1% in 2023. This hypothesis is largely fulfilled, as shows in a graph. It would mean that the rest of the forecasts are also exceeded. These come from the Spanish Bank, AIReF and OECD. The European Central Bank’s (ECB) forecast of 1% for the euro area as a whole is even doubled. 

Unlike in the crisis of 2008 

Economist Eduardo Garzón emphasises that GDP can grow even as families become poorer. He regrets that “inflation is deteriorating the purchasing power of many households”. But states that it is not an “impoverishment like the one where you lose your job”. 

In addition, unlike the previous financial crisis of 2008, the income of pensioners, civil servants and people with good unions is now protected and salary increases have even been achieved. Even the Minimum Interprofessional Wage (SMI) has been increased. Although wage improvements are on average smaller than price increases. 

Inflation is reasonably under control 

Headline inflation levels are being gradually controlled in Spain, based on low energy prices, easing of bottlenecks and the appreciation of the Euro [making oil or gas imports cheaper, which are bought in dollars on international markets]. 

However, underlying inflation – which excludes energy from the calculation – remains a challenge, mainly due to food prices and industrial goods. 

Recession factors 

“The recession factors are also there: especially the interest rate hikes by the ECB, which double the damage for households with mortgages or in need of a loan and for companies that depend on financing,” warns Eduardo Garzón. 

Car sales 

Car sales are a classic leading indicator for diagnosing how the Spanish economy will fare in the future. The theory is that vehicles are a cyclical consumer good. Expensive enough that you can’t afford it in times of crisis and useful enough that you can make an effort for it if you have a job and things aren’t going bad at all. Therefore, the growth of sales in this sector reflects optimism, confidence; strength of the economy in general. In the first quarter, car purchases in Spain shot up 44% compared to last year. 

Predictions from AIReF 

There are other, more modern and advanced leading indicators. For example, the automatic model for forecasting the evolution of GDP (gross domestic product) of AIReF (the independent authority for fiscal responsibility). It contains the economic data published during each period of a selection (company sales, unemployment, wages, energy consumption, imports…). It also provides an estimate that is updated each time one of the figures is known. 

In recent days, the AIReF model has garnered the record of nearly 20.4 million workers affiliated with Social Security and industrial companies’ PMI surveys. He expects the Spanish economy to grow by 0.7% in the first quarter, more than double the 0.3% recently forecast by the Bank of Spain. 

Cogesa Expats

The labour market 

Other positive numbers for the first quarter are already known. The increase in social security workers, for the first time in Spain’s history, to nearly 20.4 million. This record, according to José Ignacio Conde-Ruiz, a professor at the Complutense University of Madrid, is “a clear sign that GDP growth is accelerating.” 

Behind the labour market data is precisely the resistance of household consumption to the damage of inflation, the growing profits of companies that have taken advantage of price increases to improve margins, the investment that has come in and is expected from the recovery plan or the appeal of tourism, benefited by the moderation of energy price increases on international markets and by the government measures that have cushioned them for almost two years. 


“Unemployment fell by 48,800 people last month (-7.9% year-on-year), more than expected by BBVA Research (-6,000 people). That was the biggest drop in one month of March since 2004. Excluding the seasonal component, unemployment is estimated to have fallen by 53,000 people. That’s 20,000 more than in February, and has been declining for six months,” the bank’s team of analysts wrote in its latest labour market report. 

Spain suffers from a structural unemployment rate that is higher than in the rest of the major economies in the Eurozone, at just over 12%, but the evolution of the labour market since the pandemic has been better. 

Reduction of temporary employment 

“While inflation is affecting the purchasing power of workers, it is not affecting that of retirees, and above all, corporate benefits are improving. Let’s not forget that all recent data (from the Bank of Spain, the Tax Office, even the ECB) shows that corporate profits have grown extraordinarily over the past year, including ‘SMEs’ and the self-employed (not all of them)”, sums up the economist Eduardo Garzon up. 

“This could have provided a favourable environment for companies and the self-employed to hire more people to strengthen their workforce and improve the quality of their product (particularly in the services sector),” he continues. And all these factors are fed back by the drastic reduction in temporary employment and by the greater stability achieved by the 2021 labour reform, which provides families with certainty in making economic decisions. 

“The labour reform has penalised temporary hiring of staff and has given priority to contracts for an indefinite period. Companies lay off people less often, which provides more stability for those who are hired,” Garzón added. 

Shock measures 

Income protection with shock plans is another pillar of economic activity in the country. The government claims that the income-oriented measures have removed 40% of the inflationary damage for the poorest. The sum of these targeted measures and those of prices in general (tax cuts, fuel discounts…) would have removed 60% of the loss of purchasing power of lower-income households in 2022. 

The price measures that affect all citizens equally have compensated for the loss of purchasing power in all income classes to a more or less equal extent. However, targeted measures have made a difference and improved protection for the poorest households. Especially among the 20% of families with the lowest income, according to calculations by the Ministry of Economic Affairs itself. 


Some of these general measures and other direct aids to companies and in particular to sectors such as agriculture or industry have increased the export competitiveness of Spanish companies. Mainly because of the lower energy costs during the entire crisis compared to France, Germany and Italy. In this way, the foreign sector, including the intense moment of tourism recovery, has continuously contributed to economic growth. 

“In a complex international context, Spain’s economy continues to grow strongly, higher quality jobs are being created and Spain is consolidating itself as one of the most attractive destinations for foreign investment,” Economy Minister Calviño said on Tuesday. 

Banking sector 

Finally, the financial turmoil of recent weeks, following the bankruptcy of the Silicon Valley Bank in the United States or the Swiss bank Credit Suisse, has affected the eurozone less than other economic regions. 

Related post: “Absolutely” no risk of contagion at Spanish banks 

“The European banking sector is resilient to financial stress thanks to high levels of capital and liquidity and a business model with a diversified customer base. This is largely due to the regulatory reforms implemented in recent years, as well as a robust supervisory regime. All this positions European banks relatively favourably in the face of interest rate hikes. 

You may also like