Why is Spain growing more than Europe? Tourism, the low weight of the industry and the low dependence on China give an advantage

All forecasts point in the same direction: the Spanish economy will grow clearly above the eurozone as a whole in both 2023 and 2024. A surprising endurance that contrasts with the greater collapse in activity suffered during the coronavirus compared to European neighbors. However, these two phenomena are two sides of the same coin.. And a good part of the reasons that explain why the collapse of the Spanish GDP was so great in 2020 also help to understand why Spain is now doing better than the rest of Europe. The greater weight of tourism in the Spanish GDP, the lesser importance of the industry and the reduced dependence on China are the three key factors that explain the advantage that Spain has achieved.

This is how the Bank of Spain sees it, which presented a report this Monday in which it explains how the sectoral composition of the Spanish economy largely explains the better data that the country is showing compared to its neighbors.

The first factor at play is tourism, surely the element that best explains the differences in the growth forecast for this year. In Spain, the sector contributes 11.4% of the entire gross added value of the economy, compared to an average of 7.3% in the eurozone and 5.3% in countries like Germany, says the banking supervisor.. That is to say, tourism contributes more than a tenth of the value of what the Spanish economy produces once production costs have been discounted.

The greater weight of this sector compared to other countries amplifies the good results that have been obtained this year in tourist activities. In 2023, Spain has already recovered the number of foreign visitors it received before the pandemic and spending figures have skyrocketed to historic highs, driven by inflation. The recovery of tourism has given Spain a boost of oxygen that most countries have not been able to count on at a difficult time for the economy.. However, it is worth remembering that it was also, precisely, this strong dependence on tourism and contact services that explains why Spain sank more than anyone else in the eurozone during the pandemic.

The second differential factor that is helping Spain in this context is its lower dependence on industry.. The industrial sector is one of those that is experiencing the greatest difficulties as a result of the energy crisis unleashed in Europe after the war in Ukraine. Especially the manufacturing segment that most depends on energy for its manufacturing, such as the chemical industry, steel or cement. The Bank of Spain estimates that the manufacturing industry accounts for 2.5% of the gross added value of the Spanish economy, compared to 2.7% in the euro area and 3.3% in countries such as Germany.

In addition, there are other industries that have been affected by bottlenecks, but whose negative impact on the Spanish economy is diluted thanks to their lower weight in the GDP.. This is the case of the automobile industry, which in countries like Germany represents 4.4% of the added value of its economy, compared to 1.1% in Spain.

To these factors already mentioned, the Bank of Spain adds two other elements: lower commercial exposure to China and a gain in competitiveness compared to other countries.. Regarding China, the Bank of Spain points out that a slowdown in the Asian giant's economy “would have a lower impact on trade channels than on other neighboring countries.”. The added value that trade with China represents for Spain is 1.2%, compared to 2% in the euro zone or the 2.7% registered in Germany.

In addition, the banking supervisor points out that the lower rise in wages in Spain compared to other eurozone countries and the greater containment of prices also help explain why Spanish companies have improved their exports.

The endurance of tourism, key for 2024

The strength demonstrated by the Spanish economy during the first half of the year will be tested in the coming months. Once the peak season is over, and with the European economy stagnating, the engines that have driven growth until now will lose momentum.

One of the keys to future growth will be the tourism sector's ability to resist the slowdown.. The normalization of tourism after the pandemic and the end of the summer season could harm the sector. Furthermore, the Bank of Spain points out that the industry crisis could also affect the services that serve as suppliers.