Spain | The Spanish economy facing the challenge of inflation

Summary

This Economic Watch evaluates the factors that explain the behavior of the Spanish economy between the third quarter of 2020 and the second quarter of 2022, and estimates the structural shocks behind the growth of GDP per working-age person (WAP), the GDP deflator and real wages.

Key points

• Key points:
• GDP per WAP, although it has been growing during the last three quarters at annual growth rates above 6%, has not yet recovered either its pre-pandemic level (in 2Q2022 it is still 3,3% below its level in 4Q2019), or its trend level.
• Supply shocks would explain the complete growth of more than 5 pp observed between the third quarter of 2021 and the second quarter of 2022.
• Demand and credit shocks have been losing relevance during 2022, until they have a practically null contribution to growth in the last quarter.
• The vacancy-to-unemployment ratio has grown during 2022, putting considerable stress on the labor market, compared to the pre-pandemic situation.
• The evolution of productivity seems to have changed from the countercyclical behavior that characterized the Spanish economy to a situation more in line with what is happening in neighboring economies, where productivity is procyclical.

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