Spain | Weak external demand will prevent northern regions from building momentum in 2024

The Spanish economy delivered a strong performance throughout the first half of 2023, on the back of a gradual recovery in industrial activity within certain regions of Spain, coupled with an increase in exports, particularly of services, with tourism also pulling hard though with little room for further growth.

Key points

• Key points:
• This performance should also set the tone for this two-year period, with the economy of the northern regions of the Iberian Peninsula steadily picking up until they eventually outperform the southern and Mediterranean regions.
• Falling energy costs, the recovery of demand in Europe and a succession of successes in overcoming problems in obtaining inputs, allowed economic activity to pick up in many of more industry-heavy regions of Spain.
• Notable examples include Aragón, Castilla y León and Galicia and, to a lesser extent, Catalonia and Castilla-La Mancha, whose outlooks have been slightly upgraded following an increase in activity within the transportation sector. However, there are other regions in which industry plays a key role but which have yet to see a clear recovery, such as Navarre, the Basque Country and the Valencian Community, so it is important not to get overly excited.
• Looking ahead, the accelerated roll-out of NGEU funds should support investment, and the still-available savings pool should keep consumption relatively buoyant. However, the recent increase in oil prices, coupled with the likely imminent end of certain fiscal support measures, will keep inflation higher than anticipated and more persistent and act as a drag on disposable income.
• GDP growth in the northern regions in 2024 will broadly be somewhat lower than anticipated a few months ago. The positive growth differential with the regions more focused on services is therefore lower than initially estimated, although broadly speaking these regions will experience growth of around 2%, perhaps a shade higher, in 2024 (above the national average).

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