Spain's economy grew by 2.5% in 2023, five times more than the eurozone

Spain's gross domestic product (GDP) grew by 2.5% last year despite the onslaught of inflation and the interest rate hike.

The figure is slightly above government forecasts and those of the Bank of Spain, the OECD and the European Commission, whose estimates were several tenths of a percentage point lower. Last year was marked by high inflation - albeit at more moderate levels than in 2022 - and rising interest rates, which made mortgages more expensive.

But despite these hurdles, economic growth has now risen in its third consecutive year, although last year's was the most moderate increase of that period: in 2021, GDP rose by 6.4%; in 2022 it grew by 5.8%; and last year by 2.5%. These three years of growth follow the 11.2% plunge in 2020 as a result of the Covid-19 pandemic. By the end of 2023, GDP is already almost 3% higher than pre-pandemic. GDP at current prices stands at 1,462 billion euros, 8.6% higher than in 2022.

According to the figures, Spain's economy grew much faster than its European neighbours. It grew five times faster than the eurozone and the European Union (0.5%, according to Eurostat data) and far outpaced major powers such as France (0.9%), Italy (0.7%) and Germany (-0.3%), which were more affected by the energy crisis.

The last quarter of the year saw an unexpected upturn in the economy as it grew by 0.6%, two tenths of a point more than the previous quarter and well above the 0.3% the Bank of Spain had forecast. It has now updated its forecasts for the end of 2024 given these good records and calculates the economy will rise by 1.9% this year, the same in 2025 and 1.7% in 2026. Meanwhile, the government predicts the economy will grow by 2% in 2024. BBVA Research has predicted a GDP growth of 2.1%.

The main reason behind GDP growth was domestic demand, which contributed 1.7 points to growth in 2023, still 1.2 points below 2022. The INE data reveals two thirds of growth is due to domestic demand, and one third due to foreign demand. Household consumption has thus become the engine of the economy, but the pull of tourism also stands out in a year that saw record numbers of not only of tourists (85 million foreign visitors, exceeding pre-pandemic figures), but also of economic contribution of the tourism sector to GDP (187 billion euros, according to Exceltur calculations).

Household consumption remains at such high rates - despite rising interest rates and high inflation - largely due to a strong job market, which saw 780,000 jobs created last year - almost four out of every 10 new jobs in the euro area were created in Spain. Wages also increased at an average rate of 5.3%, outpacing inflation.

The ministry of economy said the data unveiled this Tuesday 27 March by the INE "confirm the good progress of the economy". "In contrast to the catastrophic predictions and biased stories, the figures are clear and indisputable," minister Carlos Cuerpo said. Some 21 million people also registered with the social security system last year, he added, while pointing out inflation dropped by eight points in just a year and a half, after the peak in the summer of 2022 when inflation reached 10.8%.

However, the positive figures are a stark contrast to the day-to-day economy of Spaniards, which are facing pressure from rising prices. In terms of purchasing power, Spain is still below the EU average and has yet to recover its pre-pandemic level, according to GDP per capita data published on Tuesday by Eurostat. In 2023 Spain reached a level of 89% of the EU measure (100), after reducing the gap by three points compared to 2022, but still below the 91% it had in 2019.

Spain is 16th in the table. Despite gradual improvement in recent years, after falling to 83% in 2020, Spain is still below the pre-pandemic level of 91% in 2019 and far below the peak of 105% in 2006, before the global financial crisis. Between 2002 and 2009, Spain managed to maintain a level of purchasing power income above the EU average.

The EU countries with the strongest purchasing power are Luxembourg (140%) and Ireland (112%), followed by the Netherlands, Denmark and Austria. At the other end of the scale is Bulgaria, with the lowest GDP per capita, followed by Greece and Latvia.