BBVA’s operating forecast for Spain’s GDP across all autonomous communities in 2023 has been raised, reflecting a rebound driven by the manufacturing sector and tourism. The tourism revival, helped by the end of pandemic restrictions and the clearing of bottlenecks created by European funds, underpins this regional recovery and nudges the national projection higher, about four tenths above the prior 1.6% estimate for 2023.
In 2023, the Balearic Islands are expected to lead growth, with the Canary Islands and the Community of Madrid following closely. The Balearics are forecast to expand around 3.3%, while the Canaries are around 2.8% and Madrid about 2%. Asturias, Murcia, and Galicia trail with smaller gains near 1% to 1.1%. Looking to 2024, higher interest rates are anticipated to dampen activity, with growth seen at roughly 2.6%—eight tenths below the research service’s prior outlook. This moderation could temper consumer spending and slow investment momentum, including tourism investment.
The easing of bottlenecks in 2023 supports stronger activity and helps push regional GDP revisions. Regions focused on other goods may experience a slightly slower recovery, with La Rioja, Cantabria, Madrid, and Asturias seeing more modest gains while drought challenges hold back some southern progress. Investment linked to European funds is expected to contribute additional upside in this mix.
Conversely, the tourism rebound after restrictions ends, along with a renewed appetite for travel, is set to boost regional growth. Beyond sun and beach tourism, urban tourism, fairs, and business travel are picking up, increasing tourist expenditure, particularly from foreign visitors, in Madrid and Catalonia.
Bank of Spain improves growth and inflation expectations for 2023
The economies with higher industrial capacity are projected to gain more in 2023 and to sustain this momentum into 2024 if energy, transport, and imported inputs ease in price. Navarra, Galicia, and Castilla y León are expected to grow about 2.8% next year, while Basque Country, Asturias, Cantabria, and Catalonia are forecast to reach around 2.9%.
Competitiveness despite price increases
BBVA Research notes no deterioration in competitiveness despite notable price rises for goods and services. Exporting sectors have elevated prices in line with or only slightly above competitors, and tourist regions have not shown higher inflation than other major European destinations.
Job creation remains a strength for the Spanish economy. After a marked slowdown in late 2022, Social Security data point to a marked rebound in early 2024. BBVA Research projects that all autonomous communities will return to positive job creation rates, with the Canary Islands, Madrid, the Community of Valencia, and Catalonia leading employment growth. Regarding the housing market, increased rates and economic uncertainty are expected to reduce transactions, especially in northern regions where labor markets are weaker.
The threat to consumption and investment recovery
The anticipated rise in interest rates represents the main downside risk to consumption and investment recovery. BBVA Research warns this could weigh on consumers in high-spending regions such as Madrid and Catalonia, with knock-on effects for tourism, notably in the Balearic and Canary Islands. The forecast for 2024 remains growth of 2.6%, with Asturias, the Balearic Islands, Cantabria, and the Basque Country likely to outpace the national average.
By 2024, all autonomous communities are expected to have returned to their 2019 GDP levels, according to BBVA Research projections. Unemployment is anticipated to rise to about 2.8%, about 1.5 percentage points higher than in 2023. The recent rise in the national minimum wage is projected to dampen job creation by around 0.2 to 1.2 percentage points in 2024. Extremadura, Murcia, and the Canary Islands face the sharpest impacts among the regions.
Investment in northern regions may be more exposed to energy costs, while exports driven by stronger European demand and a milder drop in consumption should lead to smaller downward revisions than those seen in the Mediterranean communities.