Spain | Exports: the driving force behind regional growth, but for how long?

Summary

In a context where domestic demand has been weakening due to the effects of inflation and rising interest rates, exports have taken over as the driving force behind economic growth, warranting an upward revision of Spain's GDP growth to 2.4% in 2023.

Key points

• Key points:
• Consumption by non-residents continues to perform at very positive rates. Card purchases by foreigners made at BBVA POS terminals could surpass those of 2019 by 60% in Spain as a whole. This means that the islands could be once again this year the communities with the greatest increase in activity (Balearic Islands 3.6% and Canary Islands 3.0%).
• Although the cost of energy has begun to fall, and inflation is decreasing with it, the core component of inflation continues to be very high, with food prices remaining elevated. This, together with rising interest rates, has reduced the purchasing power of household income and wealth.
• Thus, communities that are more dependent on domestic demand and that are traditionally domestic tourism destinations could be more affected. This is the case of the Community of Valencia (2.1%), Andalusia (2.1%) and Murcia (1.8%).
• Available indicators suggest that by 2024, the accommodations and hospitality industry will already be approaching pre-crisis capacity levels, which could lead to greater difficulties in absorbing possible additional increases in demand. For this reason, the archipelagos are experiencing the largest downward revisions and will be at the tail end of regional growth in 2024 (Balearic Islands 1.5% and Canary Islands 1.4%).
• Moreover, fiscal policy will continue to be expansionary, and the accelerated pace of project execution linked to NGEU funds will enable the increase in activity to be above average in Castile-La Mancha and Extremadura (2.2%), despite the negative impact of the drought.

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