2023-07-23 19:33:29
The outgoing Spanish Prime Minister, Pedro Sanchez, is a loser at the polls. And yet its economic record pleads in its favor. The Iberian economy is showing good results, after the succession of shocks linked to Covid and the war in Ukraine.
First eloquent indicator, Spain regained its pre-pandemic level of national wealth at the start of 2023, after recording a 0.6% increase in its national GDP in the first quarter of 2023, according to INE, the Spanish INSEE. On Twitter, the Spanish Prime Minister, Pedro Sanchez, then greeted a “Growth accelerating in Spain”.
Top of the European charts
Madrid ranks among the states that prance at the top of the growth charts in the euro zone. A great victory for this country whose GDP is the one that had fallen the most in the European Union in 2020, in the midst of the Covid crisis, then posting a decline of almost 11% (8% in France, editor’s note).
For 2023, the OECD is certainly forecasting growth rather close to 1.5%, but the Bank of Spain is counting on 2.3% and the government has built its budget on an assumption of 2.1%. The Spanish recovery plan, fed by European funds, or 140 billion euros for the Iberian authorities, is starting to run at full speed. The Bank of Spain forecasts an increase in activity of 2.2% in 2024, then 2.1% in 2025.
More than a million jobs
On the employment side, Spain created 426,000 full-time jobs in the first quarter, for a total of 1.3 million jobs recorded since the end of the pandemic. Head of economic studies at the Banque Postale, Alain Henriot calls for caution, however, evoking a “catch-up effect”, linked in particular to the recovery of tourism, paralyzed by the Covid years. “Since the spring of 2022, he specifies, the unemployment rate is more or less stabilized. It’s not going down anymore, but it’s not really going up either. And the level of employment is above our pre-health crisis levels (especially in services). »
Still, a lull is also being felt on the inflation front, which has brutally hit the country via energy prices. After a general rise in prices, which peaked at 10.8% over one year in July 2022, the decline is very clear (3.2% in May over one year), “under the effect of the decline in energy prices”, analyzes Alain Henriot.
Increase in debt interest
However, Madrid still have challenges ahead. In the Spanish government’s stability program submitted to the European Commission in the spring, public debt would be under control “but would not return in 2026 below 100% of GDP”, still according to Alain Henriot, who specifies that “Madrid’s effort to control spending would be partly offset by an increase in interest charges”. As for the public deficit, it will not fall below 3% of GDP until the end of 2026.
This satisfactory situation, with more contrasting public finances, can be seen in the interest rates on the markets, points out Alain Henriot, recalling that “Recently, the Spanish rate has become higher than the Portuguese 10-year rate, illustrating a certain caution among investors, both on the sustainability of public finances but also because of the political situation (what result in the early legislative elections of July 23?) and institutional (Catalan crisis in 2019)”. Spain is however rated A by S&P, while Portugal has a lower rating (BBB+).
For Madrid, can we read in a recent note from Bercy, “the major challenges for the coming years concern the implementation of the national recovery and resilience plan, and the control of inflation and the absorption by the economy of the reversal of the ECB’s monetary policy”. A European Central Bank which is about to raise its rates again at its next meeting on Thursday 27 July.
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