BBVA Research Revises Growth Outlook for Valencia and Other Regions in Spain
Uncertainty on the international stage is steering the economy toward slower growth. That is the conclusion of the latest BBVA Research report, which reduces growth projections for all autonomous communities, including Valencia, and notably misses some earlier targets. The forecast for the Valencia region next year sits at 1.8% GDP growth, roughly half of the initial plan, signaling a shift toward the national average. A key driver of this revision is softer European demand for goods and tourism.
For the third quarter of 2022, the BBVA Research Regional Observatory adapts the national scenario to the regional level. The outlook for Spain contemplates an uptick in tourism and goods exports within the year, along with investments in machinery and equipment and an improvement in services. This translates into a projected rise of 0.4 percentage points for Aragon due to renewed industrial activity, and about 0.2 points for Asturias and the Basque Country thanks to stronger export momentum. The Balearic Islands are also expected to benefit from a 0.3 percentage point growth boost as foreign tourism accelerates, while the Canary Islands maintain their leadership in GDP growth for the year (all figures reflect regional dynamics within the broader national trend). (Source: BBVA Research)
On the flip side, the report signals slower private consumption in Spain, with the impact weighing more on communities that rely heavily on national tourism. Valencia is highlighted as a case where growth projections were trimmed by 0.1 percentage points to 3.8%, a change mirrored in Catalonia. Murcia also sees a drop of 0.3 points, while Madrid and Extremadura experience declines of 0.2 and 0.6 points, respectively. (Source: BBVA Research)
The outlook for 2023 introduces a somewhat larger, though nuanced, economic slowdown than three months prior. Overall growth forecasts are lowered, with Valencia anticipated to lose 1.5 percentage points, resulting in a 1.8% GDP increase for the year. Other notable reductions affect Navarra and Catalonia, with decreases near 1.7 percentage points; the Canary Islands and Murcia see about a 1.6-point dip; Galicia, the Basque Country, and the Balearic Islands each face around a 1.5-point reduction. (Source: BBVA Research)
Despite these revisions, the outlook places Valencia on a path to recover pre-crisis GDP levels by the end of 2023, alongside Catalonia and Castilla-La Mancha. The Balearic Islands are projected to reach a robust 3.5 percentage points, the Canary Islands around 3 points, Madrid about 2.6 points, Extremadura 2.4, and Andalusia 2.0. Navarra and Asturias would reach 1.1 and 0.8 respectively. If these projections hold, Valencia would align with the regional trajectory that recovers pre-pandemic output within the forecast horizon. (Source: BBVA Research)
Several factors help explain the downward revisions. A softer growth prospect for the European Union—driven by the ongoing war in Ukraine—appears to dampen demand for European goods and tourism, with pronounced effects in Valencia, the Canary Islands, and the Balearic Islands. Elevated energy prices and potential supply constraints could hinder the recovery of energy-intensive industries that rely on natural gas. In addition, rising interest rates and a general economic slowdown are expected to strain household budgets and business costs, though the impact will vary by region. (Source: BBVA Research)
Another consideration is potential inflation persistence, fueled by higher energy costs. If inflation remains elevated, wage dynamics and operating costs could erode competitiveness, posing a challenge to the recovery path in the quarters ahead. (Source: BBVA Research)