The Spanish Economy: A Record-Breaking Growth

The Spanish economy has achieved a remarkable milestone, recording the highest GDP growth in the European Union in the third quarter: a 3.4% year-on-year increase, nearly four times higher than the European average. Despite some concerns about excessive public spending, the macroeconomic figures paint a positive picture for the short term, with no signs of the imbalances that led to past crises. Private sector debt is decreasing, there are no signs of credit bubbles, the risk premium is lower than France’s, and the external accounts show a solid surplus (the current account surplus accumulated until August is 30% higher than last year). The productive fabric is diversifying, driven by the growth of non-tourism service exports, which have almost quadrupled the GDP growth.

Economic Outlook and Citizen Perception

The overall economic situation is encouraging, but the perception among citizens may vary after the series of shocks in recent years. Winners in this period include those who have secured employment, especially the previously unemployed and foreign workers who have entered the labor market – the largest group being the latter. Additionally, recipients of the minimum wage and benefits that have been adjusted above inflation have also seen improvements. On the other hand, investors who have capitalized on rising interest rates and stock market gains are on the winning side.

Challenges for the Middle Class

However, the middle class has experienced a decline in purchasing power: despite the observed wage improvements until the third quarter, the average earnings per employed person are still lower compared to five years ago (adjusted for inflation). Young people also face challenges in accessing housing.

Productivity and Economic Growth

The gap between macroeconomic results and citizen perception highlights the characteristics of the Spanish economic model, characterized by slow productivity and wage growth. The economy continues to grow by expanding the workforce, particularly with an influx of foreign labor in recent years, rather than through efficiency improvements. From the last quarter of 2019 to the third quarter of the current year, GDP has increased by 6.6%, while employment has grown by 9.3%, indicating a decline in productivity per worker. Although there has been a slightly positive trend in productivity per hour worked, there is no structural improvement yet.

The additive growth model faces the challenge of constructing housing to accommodate the growing population supporting the current expansion cycle and facilitating labor mobility. However, residential investment has been slow to respond to the scarcity, with construction being one of the most delayed variables since the pandemic.

Investment Deficit and Future Prospects

A significant limitation lies in the deficit of investment in equipment and productive improvements. Despite healthy corporate accounts, ample European funds, and foreign capital inflows, the investment volume remains around 10% below pre-pandemic levels. This shortfall could constrain expansion and hinder the transformation of the economic model.

Meanwhile, per capita income has only increased by 1.4% in the considered period, nearly five times less than GDP growth, highlighting the need to enhance the social benefits of economic growth.

Deficit Concerns

Despite economic growth, the public accounts deficit does not seem to be correcting itself. The consolidated deficit of public administrations (excluding local governments) stands at 2.3% of GDP, as of August. This is a tenth higher than the same period last year. While revenue continues to increase in line with the economy, public spending is growing at a faster rate. Notably, government consumption has surged by 6%, surpassing expectations in a budgetary extension context.

Conclusion

The Spanish economy’s record-breaking growth reflects positive macroeconomic indicators, but challenges remain in bridging the gap between economic progress and citizen perceptions. Addressing issues such as productivity, wage growth, housing accessibility, and investment deficits will be crucial to sustaining long-term economic development and ensuring inclusive growth for all segments of society.

FAQs

What is driving the Spanish economy’s growth?

  • Strong export performance, particularly in non-tourism services
  • Reduction in private sector debt
  • Solid current account surplus

What are the challenges facing the middle class in Spain?

  • Declining purchasing power
  • Difficulty in accessing affordable housing
  • Limited wage growth compared to inflation

How can Spain address the deficit in investment and productivity?

  • Promoting investment in equipment and technology
  • Encouraging innovation and research and development
  • Enhancing workforce skills and training
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