The Spanish Economy: Near-Term Outlook and Main Economic Challenges Ahead

Abstract

In recent quarters, household consumption has been more robust in Spain than in the main euro area countries. Spanish goods exports to Germany/the euro area have been notably resilient, despite the weakness of these economies. Nonetheless, much of the economic growth in Spain in recent years has been due to population growth, without any significant improvement in productivity. The flash estimate for 2023q4 surprised on the upside, with quarter-on-quarter GDP growth of 0.6%. The latest information suggests that employment could continue to grow in 2024q1 at a pace similar to that of the previous quarter. Inflation held steady in December and picked up slightly in January. Firms surveyed in the EBAE have been perceiving a rise in economic policy uncertainty in recent quarters. In recent quarters, compensation per employee in the market economy has outpaced wage increases negotiated in collective agreements against a backdrop of weak productivity, such developments in compensation per employee mean higher unit labour costs. Spain’s economic growth in recent decades has not been sufficient to achieve convergence with euro area per capita income levels. While Spain’s unemployment rate is expected to gradually decline over the coming years, it will remain well above that of the euro area. General government debt- and deficit-to-gdp ratios will remain very high in the coming years.