Spain’s economy is set to grow 2.4% this year, a touch higher than September estimates, yet 2024 should slow more than forecast to about 1.7%. The European Commission’s autumn projections confirm a mild inflation path in Spain, with the public deficit staying above 3% in 2024 and 2025 as EU rules come into effect, even as temporary energy-price relief measures wind down under the Stability and Growth Pact.
Brussels’ updated analysis keeps Spain as a leading engine for Europe, though momentum has cooled from the surge of earlier years due to higher living costs, softer foreign demand, and tighter monetary policy. Spain is still expected to outpace other large euro-area economies like Germany, which may contract by around 0.3%, the Netherlands at 0.6%, Italy at 0.7%, and France hovering near flat growth. The Commission trimmed its euro-zone and EU growth forecasts for the year, reducing projected gains to 0.6% (down from 0.8% in September).
Despite the broader slowdown, the macroeconomic scenario remains positive for Spain. Domestic demand is anticipated to drive growth in 2024 and 2025, supported by rising real household income and ongoing regulatory flexibility. This path suggests a steadier expansion, underpinned by policy measures and continued investment activity.
Key additions to spur the economy include the effective rollout of recovery plans and faster payments to final beneficiaries. These steps are expected to sustain investments in machinery and equipment. The Commission notes that GDP should rise 1.7% in 2024 and then accelerate to about 2% in 2025, with the recently approved Recovery and Resilience Facility loan component providing extra stimulus to growth-oriented spending.
Risks linger and point to a prolonged impact of tighter financial conditions on demand, especially as public and private debt remains high though trending downward. Nevertheless, experts argue that stronger household purchasing power and a healthier balance sheet for households and firms can ease consumption and investment barriers, helped by lower leverage and available liquidity built up in recent years.
Labor market resilience
In the labor market, the report notes a decline in temporary private-sector hires, signaling more sustainable job growth and resilience this year, even as employment gains slow since the summer. Forecasts project the unemployment rate to fall to about 12.1% in 2023 and to improve to roughly 11.6% in 2024 and 11.1% in 2025. It also foresees a modest, steady rise in wages aligned with the multi-year agreement reached last May, with only modest effects on cost competitiveness.
Inflation is expected to ease gradually. The Commission sees Spain ending the year with around 3.6% inflation, aided by softer price pressures in the economy. Core inflation, which excludes energy and food, is projected to slow from 3.4% in 2024 to 2.1% in 2025, reflecting the gradual cooling of underlying price pressures.
Open over 3%
Regarding the public deficit, it is projected to decline but at a slower pace than in 2021 and 2022. The fall will be helped by lower than expected indirect tax revenues amid softer inflation in imported goods. On the expenditure side, higher pension costs and interim spending driven by indexation to inflation push current spending up. The plan includes measures worth 2.7 billion that address the impact of high energy prices, including extending VAT relief, reducing essential food costs, and direct support to road and maritime transport sectors. As a result, Spain is projected to close 2023 with a structural deficit near 4.1% of GDP.
The outlook for 2024 and 2025 assumes policy continuity. The deficit should continue its downward path to about 3.2% next year, with energy-related relief measures fading as savings accumulate. Tax changes, such as a financial institutions levy or a wealth tax, are expected to wind down by end-2024, while the deficit may modestly rise to around 3.4% in 2025. Debt is forecast to ease from approximately 107.5% of GDP in 2023 to about 106.5% in 2024 and 2025, a trajectory that suggests stabilization of the debt path amid improving nominal growth and debt service costs.