The European economy has been stagnant for twelve months. Inflation, fueled by the energy crisis and the strong rate increases of the European Central Bank (ECB) have frozen growth in the Old Continent. However, in that time Spain has managed to maintain a considerable level of activity that has allowed the country to close part of the distance lost during the pandemic with respect to its more advanced neighbors.
The data from the European national accounts released last Tuesday paint a not very encouraging picture. In the third quarter of 2023, the eurozone economy had barely grown 0.1% compared to the same quarter of 2022. In fact, between July and September the GDP of the euro area contracted by 0.1% when measured against the second quarter of the year.
On the other hand, the situation in Spain has been remarkably different.. The Spanish economy is now 1.8% larger than a year ago and in the third quarter the country was able to grow 0.3% thanks to the surprising rise in consumption.
The resilience of Spain's economy in the last 12 months has allowed the country to close part of the gap that opened in 2020, when the pandemic stop sank the Spanish GDP more than in any other country.. Spain not only suffered the biggest blow in all of Europe, it was also one of the countries that took the longest to recover from it.. In the second quarter of last year, Spain's GDP was still 0.2% below the level recorded before the pandemic (fourth quarter of 2019). At that time, the eurozone as a whole was already 2.5% above the pre-coronavirus record.
However, the differences are now much smaller.. In Spain, the current GDP volume is 2.1% above the last quarter of 2019, while the eurozone exceeds that reference by 3%.. In fact, after knowing the latest data, Spain already surpasses the records of the two main euro economies: France – whose GDP is now 1.8% higher than at the end of 2019 – and Germany (0.3%). Furthermore, if the forecasts of the main analysts come true, Spain would be, within the large EU economies, the one that will have grown the most since the pandemic broke out.
Why has Spain resisted better?
The greatest resistance of the Spanish economy in these last twelve months has two main protagonists: exports and consumption. At the end of 2022 and the beginning of 2023, foreign sales were practically the only driver of growth in Spain and in the eurozone. However, the drop in consumption and investment counteracted the negative contribution of the foreign sector in the eurozone, which caused the economy to stagnate.. On the other hand, Spain managed to avoid these obstacles and managed to grow in that period.
When exports stopped dead with the arrival of spring, Spain found itself with an engine that the eurozone as a whole has not been able to count on: consumption. The spending of Spanish families and public administrations has managed to keep the Spanish economy moving in the last two months.
This effect is largely explained by the good performance of the Spanish labor market.. Of the large euro economies, Spain is the one that has created the most jobs since the outbreak of the pandemic. The number of employed people in Spain was 4.8% higher in the second quarter than that recorded at the end of 2019. France (3%), Germany (1.6%) or Italy (1.2%) have recorded more modest employment growth. The drop in inflation and job creation have encouraged Spanish households to continue spending, which has boosted growth.
The resistance of the Spanish economy is also explained by the sectoral composition of the country, as the Bank of Spain recently pointed out.. In Spain, the tourism sector – which has experienced a full-blown boom this year – has a much greater weight in the economy than in other European countries.. It also plays in Spain's favor that the industry – one of those most affected by the crisis – has a less relevant role than in countries like Germany.. To this we must add that the economic ties between China and Spain are also weaker than in the eurozone as a whole.
Uncertainties and scars
The doubt now is whether Spain will be able to resist the stagnation into which the European economy has fallen for much longer.. The outlook for the fourth quarter points to a new slowdown, but with growth figures still positive. The expected rebound in inflation and the effect of interest rate increases will tend to curb consumption.
Furthermore, it is important to remember that, even if Spain emerged stronger from this crisis, the scars left by the Great Recession of 2008 still remain.. If we broaden the focus and analyze how the Spanish economy has evolved since 2008 compared to other countries, the distances are still very large.
Spain's GDP is now 8.9% above the level it registered in the third quarter of 2008, when the bankruptcy of Lehman Brothers occurred.. On the other hand, the eurozone as a whole has grown by 13.2% since that date, with Germany (15.4%) and France (13.7%) with records much higher than those of Spain.. In fact, Spain is the fourth country in the eurozone that has grown the least since the great financial crisis.. Only Greece – whose economy is still 20% smaller today than it was then –, Italy and Finland have made less progress.