Since the end of the health crisis, Spain has stood out from the other major European economies by its dynamism. In Q3 2024, Spanish GDP by volume stood at 7.3% above its 2019 level, compared to 4.8% for the Eurozone as a whole. Unemployment continues to fall, reaching 11.3%, compared to 26.3% at its peak in Q1 2013.

Temporary factors can partly account for this difference in momentum in Spain compared to the rest of the Eurozone: in particular, its relatively low dependence on hydrocarbons from Russia and its strong autonomy in electricity production have partly protected it from the inflationary shock experienced elsewhere in Europe. In addition, it benefits from significant European funding under the national recovery and resilience plan put in place since the health crisis, amounting to 13% of GDP in 2019 (one half in the form of subsidies, the other in the form of loans) and this has boosted economic activity since 2021. Finally, part of the growth in employee income and consumption has been supported temporarily by a return to normal of corporate margins, which had increased considerably after the 2008 financial crisis.

There are other more structural factors that account for the persistent over-performance of the Spanish economy. Firstly, it also has the advantage of strong tourist appeal, a real driver of growth since the end of the health crisis. Secondly, Spain has some very favourable demographic dynamics, driven by the immigration of qualified people from South America who are able to integrate the labour market fairly easily. Thus while real GDP growth is high, GDP per capita growth appears to be much closer to that of its European neighbours.

However, this economic performance must be put into perspective by looking at change over the last two decades. In 2019, Spanish GDP per capita was only a few percentage points higher than its level before the 2008 financial crisis. Investment has never caught up with its 2007 level and private consumption is only slightly higher than its level of 17 years ago, despite the increase in population. Therefore still today, part of Spanish growth results from a gradual fading of the stigma of the financial crisis.

Over the forecasting period to mid-2025, most of these factors are expected to continue to support Spanish growth, especially the demographic dynamics and the country’s attractiveness as a tourist destination. In addition, European-funded recovery spending is likely to continue into 2025 while fiscal consolidation is expected to be moderate. However, the energy price gap is increasingly unlikely to account for a difference in momentum compared to other European countries, and inflation has already fallen sharply across Europe in Q3 2024. Finally, in the short term, real wage gains recorded since the health crisis are likely to continue to drive household consumption. However, in the absence of gains in productivity, the dynamics of real wages could stall, with company margins having returned to their 2007 level...