Despite a Eurozone Slowdown, Spain’s Economy Shows Continued Growth

Spain leads the way on eurozone growth, and last year, the Spanish economy expanded 2.5 per cent, marking the fifth consecutive year of robust economic growth - and by far the fastest growth rate amongst large eurozone economies. Spain has also increased its domestic spending, increased its tourism sector, and looks to issue “green bonds” to bolster its ability to go carbon-neutral, whilst supporting business growth.

Spain’s economy continues to improve since exiting its financial crisis, and despite looming political uncertainty. Over the whole of last year, the Spanish economy expanded 2.5 per cent, marking the fifth consecutive year of robust economic growth and by far the fastest growth rate of all big eurozone countries. Recently, the Spanish Central Bank boosted its growth forecast to 0.6 per cent in the first quarter, up from a previous estimate of 0.5 per cent, showing that Spain continues to grow even as the rest of Europe slows down.

The 2019 edition of the annual Index of Economic Freedom, published by the Heritage Foundation, showed that Spain’s economic freedom score over the past, year has only risen, reaching a score of 65.7. This means Spain is now ranked the 57th freest economy in the entire Index, aided in part by tax cuts in 2015 and 2016, in combination with budgetary stability. While Spain’s overall score is still below the regional average, it remains firmly above the global average, and continues to improve.

“The risks for the Spanish economy are clearly to the downside,” Oscar Acre, the Bank of Spain research head, told journalists, at a briefing in Madrid last week.

The Bank of Spain continued to predict growth of 2.2 per cent in 2019 and 1.9 per cent in 2020, well above expectations for the euro as a whole, but still a slowdown from the expansion rate of 2.5 per cent in 2018. The contribution of exports to Spain’s overall GDP was also revised downwards, by 0.9 per cent from 2019 through 2021.

Spain outdid expectations in the final quarter of 2018, and the momentum has carried on through early 2019, thanks to Spanish consumers’ bolstered spending, paired with a steady increase in employment. This helped offset a reduced demand in Spanish exports. Spanish citizens have also benefited from a drop in the price of oil, and the ECB’s expansive monetary policy. The rate of saving has fallen, which indicates that more citizens are focusing on spending – a sign of trust in an expanding economy. The Bank of Spain predicts the country’s unemployment rate to fall to 12 per cent by the end of 2021 – down from 14.4 per cent in 2018.

One in every seven euro paid into the Spanish economy came from the tourism sector. Copyright: leonov.o /

Reduced unemployment has helped boost salaries, and inflation remains low, as an increase in unit labour costs is not translating into pushing prices higher. Instead, companies are absorbing the increase in labour costs by shrinking their profit margins, which is a trend seen across the eurozone. As a result, the Bank of Spain has cut its forecasts for harmonised consumer prices, down to 1.2 per cent for 2019, with a projected inflation of 1.5 per cent in 2020 and 1.6 per cent in 2021. However, Spain’s budget deficit is expected to be a mere 2.5 per cent in 2019.


Another boost to the economy came from tourism. One in every seven euros paid into the Spanish economy came from this sector, and Spain has outpaced the United States to become the world’s second-largest receiver of international tourists. (France has the honour of ranking first). Last year, Spain’s tourism sector grew by 2.4 per cent, and contributed a total of 178 billion euros to the economy – 14.6 per cent of the country’s GDP. It also accounted for 2.8 million jobs – 14.7 per cent of all jobs in Spain. Spain was the 5th largest tourism economy in the EU, and 9th in the world in terms of total contribution to GDP. The sector is expected to continue to grow by 2.8 per cent this year, putting it above the European average of 2.5 per cent.

The World Travel & Tourism Council (WTTC) president and CEO, Gloria Guevara, said  “2018 was another year of strong growth for the global travel and tourism sector, reinforcing its role as a driver of economic growth and job creation (…). For the eighth consecutive year, our sector outpaced growth in the wider global economy.”

“Spain has the potential to increase the size of its travel economy even further, by growing the size of its business tourism sector (…). At present, business travelers account for only 12 per cent of all spending in Spain, against a European average of 21 per cent.” The WTTC will be hosting its 2019 Global Summit in Sevilla this April, bringing together global leaders and sector experts to discuss the travel and tourism business sector.

Going Green

Moreover, Spain is also considering issuing so-called “green bonds”, to help businesses fund reforms deemed necessary to comply with the government’s environmental plan. Spain’s state run Official Credit Institute (ICO) would oversee the bonds’ issuance.

“Spain has a very ambitious approach to tackling climate change, and we wish to be at the very vanguard of the ecological and energy transition. This requires large investment volumes and we are studying the possibility of issuing green bonds, among other mean,” said Economy Minister Nadia Calvino to Reuters, in an interview from her office in Madrid.

In February, the government earmarked 47 billion euros in public investment over the next decade, as part of its efforts to go carbon neutral by 2050. The state-backed bonds would help companies leverage private investment, though details have yet to be shared about how much would be invested, or which companies were opting into the plan.

“These bonds would fund investment in areas such as renewable energy and energy efficiency, or sustainable water and land management, all elements of our National Energy and Climate plan, currently subject to public consultation,” said Calvino.

Related to this, the Spanish government has asked the European Stability Mechanism, for permission to repay part of the country’s 2012 bank-bailout earlier than scheduled. During the financial crisis, Spain received almost 42 billion euros in rescue funds, and has 24 billion left to repay. Spain plans to issue 35 billion euros in debt in 2019, but the government seeks to reduce this figure if at all possible.

Japanese Investment

Despite uncertainty regarding Spain’s upcoming elections in April, Japan’s Mitsubishi UFJ Kokusai Asset Management Co., worth over 121 billion dollars, is buying the Spanish bonds, contributing further to the nation’s economic stability and growth. Spanish debt makes up 12.3 per cent of Mitsubishi’s flagship fund.

Tatsuya Higuchi, executive chief fund manager at Mitsubishi UFJ in Tokyo, said, “We don’t think that political risk has heightened tremendously as Spain has been having minority governments.”

“Yields are falling everywhere, so you can’t invest in German bonds at present levels, but there is still merit in investing in Spanish bonds given the spread.”

Once the election is over, the new government is expected to pursue policies that will continue to bolster the economy overall – making Spanish investments a fairly safe bet.

Analysts agree that Spain’s economic improvement, including enhanced credit conditions in the face of regional and global challenges, make it an attractive investment option. However, investors are likely to keep an eye on Spain’s manufacturing and business service sector, in addition to factors that could potentially adversely impact the country’s overall growth.

Continued risks to the eurozone include a continued absence of clarity on if – or when – the UK will exit the EU, and uncertainty on countries adopting protectionist measures that would affect global trade, and a possible Chinese economic slowdown.

Eurozone slowdown, Spanish strength

Oscar Acre, the Bank of Spain research head, noted that the current euro-area deceleration is mostly a result of “temporary factors, that in the second half of the year are going to improve,” though this may yet prove to be an optimistic prognostication. The eurozone is Spain’s main trading partner, so any trouble elsewhere in the bloc will result in decreased demands for Spanish exports – which in turn is behind the reduction of nearly an entire percentage point of Spain’s exports contribution to the GDP – and may further impact investments across the eurozone.

The central bank noted in its annual report that “Spain has not been immune to exterior disturbances, which manifested itself at the end of last year as a notable loss of export strength.”

“However, the internal dynamism has compensated for the deterioration of external factors, to the extent that it has not produced a deceleration in activity, as seen throughout the eurozone,” it said.

It seems that Spain continues to go from strength to strength.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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