Outgoing Spanish Prime Minister Pedro Sanchez is an election loser. And yet the economic record speaks for the country. The Iberian economy is showing good results after a series of shocks related to Covid and the war in Ukraine.
First meaningful indicator: According to INE, the Spanish INSEE, at the beginning of 2023 Spain regained its pre-pandemic national prosperity level, after registering a 0.6% increase in its national GDP in the first quarter of 2023. On Twitter, Spanish Prime Minister Pedro Sanchez then welcomed “the accelerating growth in Spain”.
Top of the European charts
Madrid is one of the countries at the top of the growth charts in the euro zone. A great victory for this country, whose GDP fell the most in 2020 in the midst of the Covid crisis in the European Union, registering a fall of almost 11% at the time (8% in France, ed.).
For 2023, the OECD is certainly forecasting growth of around 1.5%, but the Bank of Spain is expecting 2.3% and the government has budgeted based on an assumption of 2.1%. The Spanish economic stimulus program, fed from European funds or 140 billion euros for the Iberian authorities, is in full swing. The Bank of Spain forecasts activity to increase by 2.2% in 2024 and then by 2.1% in 2025.
More than a million jobs
On the employment side, Spain added 426,000 full-time jobs in the first quarter, for a total of 1.3 million jobs since the end of the pandemic. However, Alain Henriot, head of economic studies at Postbank, urges caution, evoking a “catch-up effect” linked in particular to the resumption of tourism paralyzed by the Covid years. “Since spring 2022, he says, the unemployment rate has more or less stabilized. It’s not going down anymore, but it’s not really going up either. And employment levels are above our pre-health crisis levels (particularly in the service sector). »
Still, a lull is also being felt on the inflation front, which has hit the country hard via energy prices. After a general price increase that peaked in July 2022 at 10.8% over a year, the fall is very significant (3.2% in May over a year), “influenced by the fall in energy prices”, analyzes Alain Henriot.
Increase in interest on debt
However, Madrid still have some challenges ahead. In the Spanish government’s stability program presented to the European Commission in spring, public debt “would be under control but would not fall below 100% of GDP in 2026”, according to Alain Henriot, who indicates that “Madrid’s effort to control spending would be partly offset by an increase in the interest burden”. The public deficit will not fall below 3% of GDP by the end of 2026.
This satisfactory situation, with more contrasting public finances, is reflected in the interest rates on the markets, stresses Alain Henriot, recalling that “the Spanish interest rate has recently become higher than the Portuguese 10-year interest rate, which shows a certain reluctance on the part of investors, both in terms of the sustainability of public finances and because of the political situation (what will be the result of the early general elections on July 23?) and the institutional situation (Catalonia crisis in the year 2019). However, Spain is rated A by S&P, while Portugal is rated lower (BBB+).
For Madrid, we can read in a recent Bercy statement: “The main challenges for the coming years concern the implementation of the national recovery and resilience plan, as well as controlling inflation and the absorption of the ECB’s monetary policy reversal by the economy.”