Goldman Sachs reviews Spain’s election results and their economy implications
Goldman Sachs commented on the outcomes of Spain’s 23J elections, weighing what they might mean for the nation’s economy. The firm described the results as inconclusive, noting that neither the right-wing bloc (PP-Vox) nor the left-wing coalition (PSOE-Sumar) had secured the absolute majority necessary to appoint a president. Despite the political ambiguity, Goldman Sachs argued that the election results would have only limited effects on Spain’s economic trajectory and stood by its GDP growth projections of 2.3% for this year and 1.6% for 2024.
This assessment is reflected in the firm’s Europe Insights report, titled Getting Out of the Recession, released on the eve of a day when Spanish banks experienced some volatility in the stock market. The setback was largely attributed to uncertainty surrounding the elections and the potential return of a left-wing government that might reintroduce or preserve higher taxes on banks. In the bank’s view, such policy shifts would likely have only a modest impact on overall economic momentum.
From a business perspective, Goldman Sachs sees the Spanish economy staying resilient despite divergent views on fiscal policy. The core reason is the broad consensus among major parties on honoring bailout commitments and maintaining policy continuity that supports gradual growth. The firm notes that growth in Spain remains buoyed by the service sector and, to a lesser extent, by manufacturing, with the former continuing to provide the main engine of expansion even as other areas face headwinds.
European perspectives
The report also highlights a weakening trend across the euro zone, marked by a notable drop in the Purchasing Managers’ Index (PMI). The PMI fell to a surprising 48.9 in July, signaling contraction rather than expansion across manufacturing and services. As a result, Goldman Sachs trimmed its near-term projections for Europe, lowering the third-quarter growth forecast to 0.1% and the fourth-quarter forecast from 0.3% to 0.2%, with an annual growth outlook around 0.4%, slightly below earlier expectations.
Nevertheless, the bank remains cautiously optimistic about some domestic factors. It points to a softer inflation path and rising wages that could bolster real household consumption. Goldman Sachs also notes that inflation in the euro area is cooling faster than anticipated, and that Spain often leads inflation trends in the region. These dynamics, together with steady employment gains, suggest that household purchasing power could improve even as mortgage costs rise for many households.
Regarding monetary policy, Goldman Sachs expects the European Central Bank (ECB) to raise policy rates by another 25 basis points. The firm urges ECB officials to maintain a constructive view of the economic outlook, particularly given the current flexibility of the labor market. The report signals that policymakers should balance inflation containment with the need to support growth as labor conditions remain relatively robust. Goldman Sachs also implies that any policy tightening should be calibrated to avoid undermining the expansion in consumption and investment that supports recovery across the euro area. The firm stresses that the central bank’s approach should keep inflation on a clear path toward the 2% objective while avoiding unnecessary rigidity that could dampen activity.
In summary, Goldman Sachs emphasizes that while political uncertainties can create short-term market jitters, the underlying forces driving Spain’s economy — service sector strength, wage growth, improving inflation dynamics, and employment gains — tend to support continued rather than stalled growth. The bank maintains that policy discipline around bailout obligations, a measured approach to taxation, and a flexible labor market will be essential to sustaining momentum through the coming quarters. This perspective aligns with a broader view that Europe is navigating a gradual recovery, with Spain positioned to benefit from domestic resilience and improving external conditions, even as the region contends with ongoing macro headwinds.