The Spanish economy continues to be a positive surprise within the Eurozone (the outperform(that’s what the Anglo-Saxons say). Third quarter GDP once again surprised analysts and the market consensus with growth of 0.8%, exceeding what was expected by two tenths. Furthermore, annual GDP increased by 3.4%, two tenths more than the previous quarter and four tenths more than expected by experts. The Spanish economy is growing four times faster than that of the euro zone.
Strong job creation is largely responsible for this strong GDP growth. Hours worked varied by 0.9% year-on-year and employment in terms of full-time equivalents by 1.9% – compared to 2.3% and 2.1% in the previous quarter.
The INE explains in the press release that in quarterly terms, theNational demand contributed 0.9 points to quarterly GDP growth. For its part, external demand contributes -0.1 point. By demand aggregates, household final consumption expenditure increased by 1.1% and that of public administration by 2.2%. For its part, gross capital formation recorded a variation of -0.7%. The latter is the negative mark of growth in Spain, since gross capital formation is equivalent to investment. Without investment, future growth cannot be sustainable.
On the other hand, exports of goods and services showed a quarterly rate of 0.9%, two tenths more than in the second quarter. For their part, imports recorded a variation of 1.2%, an increase of six tenths compared to the previous quarter.
All sectors are making less progress in construction
On the supply side, all major sectors presented positive rates in their added value, with the exception of Construction. SO, Industrial branches increased by 0.2% quarterly. Within these, the manufacturing industry moderated its pace by 1.5 points compared to the previous quarter, to the tune of 0.1%.
Growth in Services moderated by a tenth, to 1.1%. And the primary branches recorded a quarterly variation of 0.5%, compared to -2.8% in the previous quarter. For its part, the gross value added of Construction decreased by 1.4% quarterly, presenting a rate lower than that of the previous quarter.
Why is Spain growing so much more than Europe?
Spanish economic growth in recent years has been higher than the Eurozone average, and this can be explained by a combination of structural and cyclical factors that have favored the dynamism of key sectors such as tourism, employment and services, which, in turn, stimulate domestic demand and investment. Just as the covid crisis hit with more intensity the pillars of the Spanish economy, the recovery that followed focused on these same pillars, generating a kind of roller coaster for the overall GDP which is currently in free increase.
First, tourism has played a crucial role in economic growth. Spain continues to be one of the main tourist destinations in the world and, after the shutdown caused by the pandemic, the arrival of international tourists has reached record numbers. This tourism boom has positive effects on many sectors, particularly in hospitality, transportation, retail and constructionwhich contributes to GDP growth. The recovery of this sector has been faster in Spain than in other European countries, which is reflected in the increase in tourism spending and its direct and indirect impact on the economy.
Another relevant factor is the positive dynamics of the labor market. Economic growth in Spain has been accompanied by strong job creation, which strengthens domestic consumption. The unemployment rate, although still relatively high compared to other eurozone countries, has fallen significantly and hundreds of thousands of jobs have been created in key sectors such as services and construction. The increase in social security coverage and the reduction in unemployment have stimulated domestic demand, with households having greater spending capacity.
At the sectoral level, the services sector has been one of the most important growth drivers in Spain, surpassing the industrial sector. This is partly because Spain’s economic structure is more service-oriented, including tourism, hospitality, commerce and financial activities. In the context of post-pandemic recovery, services, which rely more on mobility and personal contacts, have seen a significant rebound. The rapid reactivation of services has partly offset the weaker performance of the industrial sector, which continues to face challenges such as rising raw material costs, supply chain problems and the transition to a greener economy.
Unlike other European countries, Spain’s economic policy has facilitated this recovery thanks to a greater influx of capital European funds from the Next Generation EU program which play a key role in financing investment projects in infrastructure, digitalization and ecological transition. These funds have had a direct impact on public and private investments, improving productivity in strategic sectors and generating an additional boost to economic growth.
Finally, another factor that explains the growth differential compared to the Eurozone average is that Spain started from a lower base after the 2020 financial crisis and deep recession. The impact of the pandemic, although serious, left the Spanish economy in a situation where the potential for rebound was greater due to the room for improvement compared to more consolidated and diversified economies like Germany or France. This has allowed, in relative terms, Spain to grow at a faster rate than other countries, although the level of convergence is still far from being reached for certain indicators such as productivity or income per capita .
In summary, the accelerated growth of the Spanish economy is due to the combination of a strong tourism sector, a solid employment recovery, a booming services sector and an investment environment favorable supported by European funds, as well as the possibility of recovering ground after previous crises.
