The Spanish economy is projected to outpace the entire eurozone in 2023

As acknowledged by the International Monetary Fund (IMF) in its recent World Economic Outlook Report (WEO) published on Tuesday, July 25th, the Spanish economy continues to exhibit remarkable growth. The report indicates that Spain’s Gross Domestic Product (GDP) is poised to expand by 2.5% this year. This growth projection surpasses the IMF’s forecast from merely three months ago by 1%, and it also exceeds the estimates provided by the Spanish government by nearly 0.5%.

The IMF attributes this notable economic improvement to the “increased vigor of services and tourism” within Spain. While the summer report doesn’t delve extensively into the intricacies of the Spanish economy, it does draw a comparison with the broader eurozone, highlighting Spain’s robust GDP growth. The report revises growth figures upward for Italy (0.4%) and notes that Spain is poised to advance by an impressive 1% “beyond initial expectations.” This assessment is in stark contrast to the situation of other European economic powers, such as Germany, which is expected to face a recession this year (-0.3%) due to the “fragility of the manufacturing sector and the economic contraction experienced in the first quarter.”

The Spanish economy is projected to outpace the entire eurozone, with Spain’s growth anticipated to be more than double that of the collective eurozone. The eurozone’s GDP is predicted to advance by 0.9% in 2023 and 1.5% in 2024. Furthermore, Spain’s growth is set to outstrip that of France (0.8%) and Italy (1.1%). Even in comparison to economies outside the European Union, Spain’s growth stands out, exceeding that of the United Kingdom (0.4%) and the United States (1.8%). The Spanish government views the IMF’s figures in a positive light, emphasizing that these represent one of the most significant upward revisions. The Ministry of Economic Affairs states that Spain will achieve the highest growth among major developed economies in both 2023 and 2024, with this year’s growth nearly three times that estimated for the eurozone.

After enduring two challenging years for the tourism sector, the resurgence experienced since the latter half of 2022 and throughout this year has enabled Spain’s tourism industry to surpass pre-pandemic levels. Tourism is poised to contribute 12.6% to the national GDP by the year’s end, equivalent to 2019 figures, according to data from Exceltur. This translates to tourism earnings of €178.8 billion this year, marking an almost 14% increase compared to the sector’s performance in 2019.

Despite calls for diversification of the economy during the pandemic, tourism remains a cornerstone of the Spanish economy. Experts note that the recent strong growth has been driven by the foreign sector, as domestic demand experienced declines during the specified periods. While the world economy’s gradual weakening, particularly within the eurozone, could affect tourism, the sector is also reaching a point where further GDP growth is limited, as it has already surpassed pre-pandemic levels.

It’s important to mention that even though macroeconomic indicators are generally positive, there are still individuals, especially in the lower income bracket, who might be facing challenges. José Ignacio Conde-Ruiz, a professor of Economic Analysis at the Complutense University and deputy director of Fedea, emphasizes that while the macro data might look promising, micro-level hardships exist.

Addressing the ongoing concern of inflation, the IMF’s report highlights that combatting inflation remains a priority, as it has become a significant challenge for the eurozone. The IMF suggests that central banks should build fiscal reserves and that governments should direct tax reductions toward vulnerable groups. The IMF’s view is that enhancing the supply side of the economy would facilitate fiscal stability and contribute to a smoother decline in inflation toward target levels.

Source IMF
https://www.imf.org/en/Publications/WEO/Issues/2023/07/10/world-economic-outlook-update-july-2023

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