The Spanish economy is growing at a good pace – more so than expected – and this leads us here at CaixaBank Research to revise our growth forecasts for 2025 upwards from 2.3% to 2.5%. Despite the good news, the focus is not on the improvement in the forecasts, but rather on the uncertainty that surrounds them.
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This month, we have updated our forecast scenario for the Spanish economy. Although we now expect growth to be slightly lower than previously anticipated, the message remains broadly positive and there are several elements sustaining the Spanish economy’s dynamic growth.
Why is productivity so low in Spain and why has it grown so little in recent years? Although the answer is complex and a whole range of factors are involved, two of the key causes of the Spanish economy’s low labour productivity, as well as the low growth thereof, are the country’s production specialisation and the small size of its companies.
The good growth data for the Spanish economy in the final stretch of 2024 lead us to revise upwards our GDP growth forecast for 2025. However, the greater likelihood of tariff tensions between the US and the EU invites us to remain cautious. In this regard, we expect the economy to grow by 2.5% in 2025, above the 2.3% we were previously predicting, albeit somewhat below the revision we could have made in the absence of this uncertainty factor.
Generally speaking, the world of economic prophets is populated by pessimistic or conservative people. It is preferable for things to go better than expected than for us to be caught off guard.
How innovative is Spain relative to its European partners? We analyse the evolution of Spain’s position in the European Commission’s innovation index.
Beyond the aggregate growth data and the reading of the short-term indicators, we must continue to recall that the quality of growth is just as important as its quantity, if not more so.
In the course of 2021 we have seen that, in the wake of the pandemic, a misalignment has emerged in the real estate sector between a demand that has recovered very quickly and a supply that is more dependent on structural factors and therefore continues to lag behind. As a result of this misalignment, house prices have started an upward trend which may continue to some extent in the coming quarters as a result of higher production costs in the sector and problems with the supply of certain raw materials. Nevertheless, in the medium term, as new supply enters the market and tensions in global supply chains ease, prices should return to a growth rate that is more in line with the trend in household income.
The interest rate hikes being implemented by central banks in order to combat inflation are leading to concerns regarding the impact such tighter financial conditions may have on real estate markets. In many developed economies, house prices have risen considerably in recent years, a trend that accelerated during the pandemic, fuelling fears of real estate bubbles. Given this situation, the authorities in several countries have implemented a series of macroprudential instruments to cool down their market. However, in Spain the risk of a real estate bubble appears to be contained.
Despite COVID-19, house prices in most advanced economies rebounded in 2020, largely thanks to the expansionary fiscal and monetary policies introduced to revive economic activity.
Financial inclusion guarantees people access to an appropriate level of financial services. The considerable decline in the number of bank branches in Spain in recent years has increased the risk of financial exclusion for some customers in rural areas. These customers tend to prefer a physical bank branch and specialised offers, especially in the business segment. Within this context, the role played by rural bank branches is twofold: they allow the banking sector to specialised offers in economic sectors critical to large parts of the region, such as agriculture, whilst also maintaining a commitment to financial inclusion.
The outlook for the Spanish economy as a whole is highly dependent on the trends in inflationary pressures, especially those related to energy. The primary sector was already suffering from rising production costs and the war in Ukraine has merely aggravated the situation.
Spain’s automotive sector is trying to find its place in the new global ecosystem, having overcome the adverse environment of recent years, marked by the international supply problems affecting essential inputs such as microchips and semiconductors, as well as increases in prices and interest rates.
The agrifood sector contributes a lot of value to Spain’s economy, accounting for 5.8% of its GDP, 11% when all the activities in the food chain are included. It is also notable for its great export potential and a resilience that has helped it to weather the ups and downs of the economy over the years. Consequently, although the main markets for Spanish agrifood exports have slowed as a result of increased trade tensions and uncertainty over Brexit, available activity indicators show that, for the time being, the industry is withstanding the situation reasonably well.
The coronavirus pandemic took the world by surprise and brought international tourism almost to a complete halt. The initial phases of a relative recovery are restoring connectivity between those outbound markets and tourist destinations that have controlled the spread of the coronavirus. However, the sector will have to undertake a far-reaching and rapid transformation to adapt to the new, post-COVID-19 international tourist who will demand more personalised, flexible and, above all, safer services.
Climate change represents a key challenge for the real estate sector and for the entire Spanish economy. In this article, we analyse the risks associated with extreme weather events and the transition risks which the sector must address, as well as the role of public policies.
The automotive industry is an important driver of growth and prosperity worldwide due to its contribution (i) in social terms, by facilitating people’s mobility in an efficient, safe and affordable way, and (ii) in economic terms, as a driver of innovation, a generator of good quality jobs and a pillar of international trade. In the case of Spain, it has become a mainstay of our industry and a benchmark on a global scale, thanks to a large production capacity and high productivity resulting from a skilled workforce and a great degree of plant automation. The economic crisis caused by the pandemic has taken its toll on a sector that is in the midst of a technological transformation towards electrification. A necessary transition that will be strongly supported by the Next Generation EU (NGEU) funds.
The current crisis is triggering changes in many aspects of our lives, a large number of them related to our residential preferences. For example, working from home can transform how and where we live. The pandemic has also boosted the digitisation of the real estate sector and could speed up certain changes in other areas such as house modernisation, supporting the transition to a more sustainable economy.
With the shock of the COVID-19 outbreak, tourism businesses reduced their activity, destroying a large number of jobs and taking massive advantage of Spain's furlough scheme (ERTE). Tourism supply is now attempting to revive itself. The lifting of mobility restrictions has encouraged a good number of tourist establishments to reopen their doors, even though demand is still low. With the start of the summer season, it is essential for the tourism sector to maintain, and benefit from, its commitment to reactivation as this is the only way to create jobs again.
The Spanish agrifood sector has begun to recover after two years of decline, thanks to the moderation of production costs and the easing of the drought. However, the effects of both of these shocks still persist and the sector continues to face major challenges that are limiting its structural growth capacity.