Published on Monday, March 11, 2024

Spain | Why is it Europe's fastest growing economy?

The Spanish economy is faring better than anyone expected a few months ago. And despite high interest rates, held back by a European economy that has been stagnant and amid heightened uncertainty surrounding economic policy. With all this, GDP growth in Spain (2.1%) still looks set to outstrip the overall eurozone (0.7%).

Key points

  • Key points:
  • Spain's resilience to date has been underpinned by better-than-expected exports. Foreign tourism is also still surprisingly strong: data on foreign debit and credit card spending indicate that non-resident consumption was growing at a pace of 5% quarter-on-quarter in real terms at the beginning of the year.
  • Meanwhile, exports of non-tourist services, e.g. consultancy, information and communication technologies (ICT) and financial services, which account for a larger share of GDP (7.6%) than foreign tourism (5.0%), are trending upwards (0.5% in 1Q24).
  • Spain has also achieved gains in competitiveness. Comparing prices for exports of these services with prices of imports, we see sharp declines since 2019. Growth in the per unit value of foreign sales of tourism services has lagged growth in the price of imports of these services by 5%.
  • One factor possibly driving the improvements in competitiveness could be Spain’s more flexible labor market than elsewhere in Europe, thanks to a higher labor force participation rate, particularly of foreign residents in Spain, and immigration.
  • Finally, some public policies may be having a differential impact. For instance, measures capping increases in electricity costs could account for part of the gains in competitiveness.

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