What are the good data for the Spanish economy due to?

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The Spanish economy grew 3.4% year-on-year between July and September, according to new Eurostat data published on Wednesday. This figure is above the growth rates recorded in other countries, since the euro zone average was 0.9%.

One of the reasons for this strong increase in GDP is that Spain was disproportionately affected by the pandemicpartly due to its dependence on turismoso the Spanish economy took longer to recover from the impact.

When thinking about why Spain is outperforming its peers, it is important to remember this base effect. The recovery usually looks spectacular when compared to a unusually low starting point. Still, Spain is now on a faster growth trajectory than its average from 2013 to 2019 – meaning this is not the full story.

Tourism and exports

According to recent data from Spain’s National Statistics Institute, the country received 9.6 million international tourists in September. This represents an increase of 9.1% compared to the same period of the previous year. For his part, the spent of international visitors amounted to 12.62 millionwhich represents a year-on-year increase of 12.7%.

“Although tourism is expected to remain strong, the pace of growth could moderate as the initial wave of post-pandemic travel cools,” said Professor Ruben Dewitte, an economist at ING. “This growth is unlikely to continue at the same pace and tensions with the local population are already present,” he added.

Spain has witnessed several protests against mass tourismin which residents air their anger over rising rents, job insecurity, and other negative consequences of the sector.

Miguel Cardoso-Lecourtois, chief economist at BBVA Research, told ‘Euronews’ that he also expects a “slowdown” of Spanish growth. “The contribution of external demand should turn negative next year due to limits on export expansion of tourist services and the transition towards a growth model with greater spending on imported goods,” he explained.

Cardoso-Lecourtois added that, looking ahead, Spanish exports may not benefit as much as expected from the eurozone recovery. He attributed it to the bottlenecks that affect sectors such as motoringhe pharmacist or that of the making. These may “suffer from regulatory uncertainty, the consequences of high growth during the pandemic and changes in preferences,” he explained.

Demand fluctuations can negatively affect a sector, as they can cause a excess supply or a lack of capacityin addition to causing spikes in labor costs.

The power of contributing immigration

Spain’s good export figures, along with robust consumption, have only been possible thanks to the health of the country’s labor market. In the third quarter of this year, the unemployment rate fell to 11.21%, its lowest level since the 2008 financial crisis.

The supply of available workers, driven mainly by immigration, has allowed Spanish companies increase production without straining your budgets too much. “The foreign-born active population grew by 9.1% year-on-year last quarter, compared to a growth in the native population of 0.6%,” said Professor Rubén Dewitte.

He added: “Although this may support economic expansion, the stagnation of productivity per full-time equivalent job also highlights the need for policies that ensure the productive integration of these workers into the economy to continue stimulating economic growth.”

Ángel Talavera, head of European economics at Oxford Economics, also told ‘Euronews’ that, although “the increase in immigration” has contributed to boosting growth in Spain, we must distinguish between global GDP and GDP per capita.

While the Spanish population grows, average economic output per person does not increase as dramatically as national output. “The Spaniards have seen much less improvement than in the aggregate figures, which helps explain why there is still some discontent despite the good economic figures,” says Talavera.

Public spending

Public investment is also one of the factors that explain the evolution of growth in Spain. The country will receive 163 billion euros from the EU Fund Next Generation, created to help countries recover from the pandemic.

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At the end of October, Spain had received 48.3 billion euros. “The long-term impact of NGEU funding will depend on its ability to stimulate investment in the long term and the growth of productivity and, therefore, the strength of its multiplier,” said Professor Ruben Dewitte.

Looking to the future, Juan Carlos Martínez Lázaro, professor of Economics at IE University, told ‘Euronews’ that “the consumption should remain robust” in Spain, “especially now that inflation is already below 2%.” “The change in the ECB’s monetary policy will boost consumption and, hopefully, investment,” he explained, highlighting private investment as an area for improvement.

Professor Evi Pappa, from the Carlos III University of Madrid, also expressed a cautious optimism. “In theory, if Spain’s GDP growth remains strong, the ratio debt/GDP could be stabilized in the long term, as increasing production would help manage the existing debt burden.”

“However, Spain’s ability to maintain production growth depends on investments that increase productivity and structural reforms,” ​​he clarified. Pappa stressed that we must differentiate between the drivers of short-term growth and long-term profits, which depend on the productivity.

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