The Spanish economy is forecast to slow in the second half of the year as tourism cools, trading with major partners softens, monetary policy tightens, and the labor market remains less dynamic. Yet the European Commission holds a more optimistic near term view for Spain, lifting its 2023 growth projection. The latest figures show the economy expanding by 2.2 percent in 2023, up from 1.9 percent predicted three months earlier, positioning Spain as a leading growth driver within the Eurozone.
The update concentrates on the six largest EU economies and indicates Spain delivering more than twice the growth it did last year. France is anticipated to grow around 1 percent, Italy about 0.9 percent, the Netherlands roughly 0.5 percent, and Poland around 0.5 percent. Germany is expected to contract by about 0.4 percent. This broader context prompted Brussels to lower its EU-wide 2023 growth forecast from 1.0 percent to 0.8 percent and the euro area forecast from 1.1 percent to 0.8 percent. The Commission attributes the softer momentum to weaker domestic demand, especially consumer spending, fed by higher prices and tighter monetary policy. Indicators point to a summer slowdown in activity and softer momentum in services, even with a robust tourism season in several European regions. Source: European Commission
Looking ahead to 2024, Brussels’ Spain forecast stands at 1.9 percent, eight tenths above Poland (2.7 percent) but well above other major euro area economies: France at 1.2 percent, Germany at 1.1 percent, the Netherlands at 1.0 percent, and Italy at 0.8 percent. This scenario leads policymakers to trim the EU-wide projection for next year from 1.7 percent to 1.4 percent and the euro area projection from 1.6 percent to 1.3 percent. For Spain, the anticipated 1.9 percent is a tenth below spring expectations, reflecting a slowdown in activity likely to persist through the first half of 2024. The shared challenge across European economies is the impact of restrictive monetary policy, which continues to constrain momentum.
What helps Spain withstand the headwinds more resiliently? Community technicians cite several factors. Household purchasing power is expected to improve on the back of rising nominal wages and ongoing relief from price pressures. This mix is believed to ease private consumption barriers. In addition, a lower private sector leverage ratio in recent years and a resilient banking system reduce financial risk. Implementation of the Recovery and Resilience Plan, including support from NextGenerationEU funds, is also viewed as a catalyst for sustained investment growth over the forecast horizon. Source: European Commission
Moderating inflation
The latest inflation outlook shows energy prices easing to 3.6 percent in 2023 as the economy slows from the third quarter of 2022 onward. While high energy costs remain a concern, inflation is projected to fall further to 2.9 percent in 2024. The report notes that the core measure of inflation, which excludes energy and food and omits some industrial goods, will decline more gradually during the transition period. The spillover effects of high energy costs on other goods, especially food and services, remain evident in the first half of 2023. Source: European Commission
For the rest of the euro area, inflation is expected to fall from 5.6 percent in 2023 (6.5 percent in the EU) to 2.9 percent in 2024, far from the 10.6 percent peak reached in October of the previous year. In major economies, Poland posted the highest rate at 11.4 percent, followed by Germany at 6.4 percent, Italy at 5.9 percent, France at 5.6 percent, and the Netherlands at 4.7 percent. The 2024 outlook remains similar across these economies: Poland around 6.1 percent, the Netherlands about 3 percent, Spain and Italy near 2.9 percent, Germany around 2.8 percent, and France near 2.7 percent. The European Commission notes several risks, including the ongoing war in Ukraine and geopolitical tensions. It also cautions that tighter monetary policy and rising climate-related risks could influence economic activity more than anticipated. Source: European Commission