Spain’s GPD Forecast Upgraded By Brussels, As The Country Outperforms Expectations

A combination of the war in Ukraine, rising fuel and utility prices, and increasing food bills means that many European countries have faced a cost-of-living crisis and rising inflation.

However, in good news for the Spanish economy, and therefore those living in Spain, the country has outperformed expectations, and as a result the European Commission have raised its GDP growth forecast for Spain in 2023 by five-tenths.

Here’s everything you need to know about what these figures mean in real terms, and what this might mean for you if you’re living in or visiting Spain:

Lowered Inflation Levels

According to the latest figures from Brussels, Spain is predicted to achieve a growth rate of 1.9% for 2023. Expansion forecasts for 2024 are set to meet the current prediction of 2024.

As well as improved predictions for the nation’s GDP growth rate, the European Commission has downwardly revised its inflation estimate to 4%, which is four-tenths lower than its previous winter projections. In real terms, lower inflation levels mean lower prices for consumers and therefore increased economic activity and growth.

A Fast Economic Recovery

A new report created for the European Commission entitled the Spring Macroeconomic Forecast, has projected that Spain will have the fastest economic recovery of the four major European nations. The breakdown is that:

• Spain will experience a growth forecast of 1.9%
• Italy will experience a growth forecast of 1.2%
• France will experience a growth forecast of 0.7%
• Germany will experience a growth forecast of 0.2%

Whilst the estimates for other countries has been improved as a result of their performance, it is worth noting that Germany's estimate has remained unchanged compared to the winter forecast.

What Does This Means If You Live In Spain?

Whilst it is, of course, good news that Spain’s economic forecast is improved, those living in the country will want to know what this forecast means for them. In real terms, improve economic forecasts mean lower prices in the shops and therefore more money in your pocket. Some of the improvements in Spain’s economic fortunes has been driven by a decline in energy prices, which will also have a huge and direct impact on the finances of Spanish citizens.

But its important to Spanish residents to remain cautious. Despite the European Central Bank's recent decision to ease monetary stimulus, interest rates remain at levels not seen since 2008, ranging from 3.25% to 3.75%. This will have a huge impact on households with mortgages, and it can take time for those interest rates to begin to decrease again.

Another risk highlighted by the report from Brussels is the possibility of higher-than-expected wage increases. In Spain, a new Agreement for Employment and Collective Bargaining (AENC) was signed less than a week ago by the UGT, CCOO, CEOE, and Cepyme unions. If this agreement is approved then Spanish workers may see wage increases of 10% over three years, from 2023 to 2025, with a specific increase of 4% for 2023 and 3% for 2024 and 2025. Whilst higher wages may be good news for the workforce, they can negatively impact the economy if employers are not prepared for them, or able to provide them.

What Are The Official Views On These Changes?

Paolo Gentiloni, the European Commissioner for Economy, emphasised that Spain's growth forecast of 1.9% for 2023 remains "well above the European Union average," thanks to the country's Recovery and Resilience Plan and robust labour market.

According to Spain’s Deputy Prime Minister, Nadia Calvino "Spain will be one of the European countries that will grow the most in 2023, which will allow it to lead growth among the main economies of the euro zone for the third consecutive year."

This was a view that was also shared by The Ministry of Economic Affairs stressed that, according to forecasts, employment will maintain its dynamism during 2023 and 2024. The focus of their statement was on the fact that employment growth continues to be above the euro zone average, "which will allow the unemployment rate to continue to be reduced".

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