The Spanish economy grew by 2.5% in 2023 and accelerated in the fourth quarter in the midst of European stagnation

The Spanish economy experienced a significant acceleration in the final months of last year, managing to grow by 2.5% despite the overall stagnation in the eurozone. This positive news was reported by the National Institute of Statistics (INE), which recently released the national accounting data for the fourth quarter, providing a complete picture of 2023. The growth was predominantly driven by strong tourism activity, robust employment performance, and the recovery of purchasing power lost during the inflation crisis.

The INE’s published data surpassed all expectations, particularly for the final quarter of the year. According to the statistical institute, the GDP increased by 0.6% in the last stretch of 2023, double the consensus forecast of analysts and the Bank of Spain’s projection.

With these figures, Spain has confirmed its position as the largest growing economy in the eurozone for 2023. Notably, Spain, along with Portugal, experienced the most significant GDP growth in the final quarter of the year. In contrast, larger eurozone economies remained stagnant, with Germany’s GDP falling by 0.3%, France’s remaining flat (0%), and Italy’s growing only by 0.2%.

Economy Minister Carlos Body sees these figures as positioning the country favorably and setting an “advantageous starting point” for the government’s expectations in the coming year. The government anticipates a growth rate of 2%, exceeding the majority of analysts’ predictions of 1.5%. Moreover, the recent data provides an additional growth of three tenths of GDP for 2024 compared to previous projections. Consequently, it is likely that growth forecasts for Spain will be revised upward in the weeks ahead.

While the growth of the Spanish economy in 2023 was slower compared to the previous year’s 5.8% surge in its recovery from the pandemic, it was still a notable achievement. This growth rate marks Spain’s best annual figure since 2017, especially when considering the challenging external context where the eurozone as a whole has endured over a year of stagnation.

The Minister of Economy, Carlos Body, attributes these encouraging results to the restored purchasing power of Spanish households and the resilience of the labor market, where four out of every ten jobs created in Europe were generated in Spain.

National demand was the primary driver of economic growth in 2023, led by consumption spending from Spanish households and public administrations. However, investment and the foreign sector did not contribute to the growth.

The significant increase in employment, with the creation of 789,600 new jobs and 2.8% more hours worked, played a crucial role in driving consumption. The rise in employment and efforts to regain purchasing power resulted in an 8.2% increase in the country’s wage bill last year. Nevertheless, this data does not accurately reflect the actual increase in salaries in 2023. To get a more precise understanding, one must refer to remuneration per equivalent salaried job position, which grew by 4.4% in the fourth quarter compared to the end of 2022.

Services accounted for 80% of the growth in the fourth quarter, especially high-contact services related to tourism, such as commerce, transport, and hospitality. Additionally, services linked to public administration, such as education and health, contributed to the positive performance.

One area of concern, however, is productivity, which experienced a decline in the fourth quarter in terms of both hours worked and their efficiency per job. The productivity of each employee in the Spanish economy was 1.8% lower compared to the equivalent quarter of 2022, while hours worked were 0.8% less productive.