Spanish economy soars by 2.9% riding on crest of tourism wave

Although the growth continues to be concentrated in all activity linked to tourism (travel, hotels, leisure, restaurants, transport, etc.), it is also spreading to many other parts of the economy

José María Camarero

Madrid

Thursday, 1 August 2024, 08:32

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Spain has maintained the economic momentum that has been trundling along since the beginning of the year and has strengthened this growth in the second quarter to June, one of the periods in which it tends to make most progress thanks to tourism, although this state of good fortune has spread to almost all industry sectors. Gross Domestic Product (GDP) is growing by 2.9% in year-on-year terms with the 0.8% quarterly growth between April and June, according to provisional data from the country's national statistics institute (INE).

With these figures the economy has surpassed all expectations and forecasts and is consolidating said growth. Furthermore, although it continues to be concentrated in all activity linked to tourism (travel, hotels, leisure, restaurants, transport, etc.), it is also spreading to many other parts of the economy. In fact, manufacturing is one industry that has rebounded, especially up to the middle of the year, with growth of 5.4% in the last 12 months. Looking at personal consumption, i.e. what households and families spend, that has been boosted by 2.3%, also investment, particularly in capital goods and housing, is advancing at rates of 1.5% and 1.2% respectively.

For the Ministry of Economy, Commerce and Business this growth "continues to be balanced, with a very positive contribution from our foreign sector and a progressive moderation of prices." In fact, this foreign sector is experiencing an increase of 3.6%, which reflects, according to the ministry headed up by Carlos Cuerpo, "the dynamism and competitiveness of our companies."

The minister acknowledged that "there is still a lot of work to be done, but the reforms and economic policy measures are making it possible to maintain excellent macroeconomic data, which are also being passed on to microeconomic data, improving the economic situation and prospects of families and companies."

Rising expectations

These figures endorse the latest forecasts updated by the government on how the economy will progress in 2024. At the presentation of the latest macroeconomic framework Cuerpo announced that they had revised their calculations upwards until 2027: for this year, GDP will grow by 2.4% and by 2.2% in 2025, stabilising at 2% in 2026 and 2027. These rates place Spain as "the main economic engine of the Eurozone", said Cuerpo, who criticised the "catastrophic scenarios" that some organisations warned of a year ago. This rise will allow the public debt to GDP ratio to continue to fall from the current 107% to 100% by 2027. The economy would thus return to the starting point where it was before the pandemic, when the level of indebtedness shot up to 120% of GDP. Authorities such as the IMF also anticipate this improvement in the Spanish economy.

The three cornerstones underpinning economic growth are employment, consumption and investment. The government forecasts that 22 million people will be employed by the end of 2025 after creating one million more jobs next year. In addition, it forecasts that the unemployment rate will fall from the current 12% to just above 9% in 2027.

Not only tourism

Although tourism is a key source of growth, with record visitor arrivals and spending at the destination, Cuerpo stressed that growth is not only coming from tourism, but that exports of non-tourism services are also performing "spectacularly well" and should reach 100 billion euros by the end of 2024, according to his forecasts.

Investment, for its part, will this year finally recover its pre-pandemic level, after having been one of variables most dragging its feet in this respect. Supported by the Recovery Plan thanks to European funds, it will progress "very positively" until 2027, the last year of the current economic forecast. Government figures point to growth of 3.4% this year (six tenths of a percentage point higher than forecast in April) and 4.8% next year (eight tenths of a percentage point higher). After that, gross fixed capital formation (how investment is measured) will remain at 4% growth in 2026 and 2027.

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