The Spanish economy has become the engine of the euro zone in recent years. Although there are countries like Germany, France or Italy with a much higher overall GDP (also a higher GDP per capita), Spain is the only one to show intense growth among these European “powers”s. A trend which also seems to be gradually increasing, as revealed by the latest forecasts published by the American investment bank JP Morgan, which revised upwards all GDP forecasts for Spain, at the same time, it lowers those of Germany, France and Italy. Once again, the strength of the Spanish economy lies in a strong service sector, tourism which is experiencing unprecedented growth, a labor market which has great room for job creation and a strong migratory influx. which increases the Spanish population, generating strong GDP growth. .
Just a week ago, JP Morgan presented these figures for the Spanish economy: growth of 2.5% in 2023, 2.7% in 2024 and 1.7% for 2025, and 2% and 1.5 % year-on-year for the second and third quarters of this year respectively. Meanwhile, JP Morgan kept constant the forecasts for the rest of the Eurozone countries, which would experience lower growth than Spain, but did not register any changes compared to the previous forecast. However, The report released this week reveals that the Spanish economy has been growing, continues to grow and will grow much faster: It first revised upwards (like the INE) the growth of 2023, which was 2.7% (compared to 2.5%), then raised the GDP of 2024 to 3% (three tenths more than in the previous forecast), up to 1.8% in 2025 (a tenth more); and up to 3.3% and 3.4% in the second and fourth quarters of this year.
All the mentions of Spain in this dense report which analyzes markets, raw materials, currencies… are positive. Analysts point out that the GDP of the euro zone maintains the rate, precisely, thanks to the good performance of the Spanish economy and to the momentum that the Olympic Games brought to France. However, while the attraction of Spain will continue, even if it runs out of steam, the recent increase in activity in France will fade completely, while we are not even expecting the Italy and Germany.
“Although Eurozone GDP in the third quarter of 2024 recorded a faster-than-expected 1.5% annual increase this week, exceptional Olympic momentum in France and strong GDP growth in Ireland dominated this increase. Elsewhere, Spain is booming (Spain is booming says the report), while Germany and Italy stagnate. This gap is particularly evident in labor markets, where the unemployment rate across the eurozone fell to 6.3% this week, while job losses in Germany continue to rise. economists at JP Morgan.
“When it comes to PMIs, Spain continues to outperform, growing 3.4% quarterly annualized. This leaves the rest of the region, excluding Ireland, with slightly higher growth at 1% annualized rate… the “PMI survey continues to suggest a weak manufacturing sector, both in terms of demand, employment and confidence indicators. This weakness is widespread across countries, but Spain stands out, having outperformed the rest of the region in recent months,” adds the US bank’s report.
Domestic demand drives Spain
According to CaixaBank Research experts, this new scenario for the Spanish economy reflects a gradual change in the growth model. External demand will decline, as neighboring countries lose momentum, but at the same time, the domestic demand driver will accelerate to take over. “It is not for nothing that the Eurozone maintains very modest growth rates, while the economies of the United States and China are slowing down. On the other hand, the tourism sector, after recovering and having largely exceeded pre-pandemic levels, should also normalize its exchange rate growth, even if it will remain dynamic.
However, after years of growth based on the good performance of tourism, exports and public consumption, it is now household consumption and perhaps investment which will take over, so that the Spanish economy continues to “fly” above that of Germany, Italy or France.
Thus, analysts from the Catalan bank emphasize that private consumption will grow above 2% in 2024 (increase of 1.7% in 2023) and will accelerate slightly in 2025. “The factors which explain the reactivation of consumption are the recovery of purchasing power and the reduction of interest rates. In the future, consumption could grow more intensely, given the high household savings rate. in the heat of the sharp increase in gross disposable income in recent quarters (which saw a growth rate of 9.8% year-on-year in the first half of 2024, a figure well above inflation and the pace of creation of households)”, estimate analysts at CaixaBank Research. Private consumption appears to have fuel for a while, unless an external shock increases forced savings and stops this engine in its tracks.
Investment with European funds
On the other hand, these same analysts believe that investment will gain momentum in 2025, driven by the cycle of falling interest rates and greater traction in the execution of funds. Next Generation EU (NGEU). However, “the good prospects of our scenario are not limited to growth in activity. The labor market, despite a slight slowdown after the excellent results of the first half of the year, will continue to help stimulate domestic demand. that the figure “The average number of new members will reach almost 500,000 in 2024 and exceed 400,000 in 2025”. All this will happen in an environment of strong growth in the labor force, driven by the arrival of immigrants, which will prevent the unemployment rate from falling significantly.
Funcas partly agrees with these forecasts and has revised its growth forecast for 2025 upwards from 1.8% to 2.1%. These experts also emphasize that internal demand (private consumption and investment) will contribute up to 2 points, leading to the expansion of the economy. “The growth in private consumption stands out, supported by the creation of jobs and the disbursement of part of accumulated savings. Investment will rebound slightly as the execution period of Next Generation funds approaches and lower interest rates encourage recourse. on credit. On the other hand, public consumption will be moderate, since European tax regulations, associated with market surveillance, limit budgetary room for maneuver. The foreign sector would contribute a tenth. as tourism growth slows and imports return to historic elasticity“, conclude these experts.
