IMF improves its growth forecast for Spain

The IMF believes that the country will grow more than twice as much as the eurozone this year and 0.5% above the Spanish government’s estimates.

The Spanish economy continues to grow at a surprising rate as acknowledged by the International Monetary Fund (IMF), in its World Economic Outlook Report (WEO) published on Tuesday (25 July). This indicated that Spain’s Gross Domestic Product (GDP) will grow by 2.5% this year, which is 1% more than what the IMF forecast only three months ago and almost 0.5% more than what the Spanish government estimated.

The IMF considers that the fundamental reason for this economic improvement is due to the “greater strength of services and tourism” in Spain. In its summer report it does not give much more detail about the Spanish economy, but it does compare the situation with the rest of the eurozone and points to robust GDP growth in Spain. Growth is revised upwards in Italy (0.4%) and in Spain it will advance 1% “more than expected” the report states, contrasting this situation with that of other European powers such as Germany, which will enter recession this year (-0.3%) due to the “weakness of the manufacturing product and the economic contraction of the first quarter”.

Double the eurozone

Spain will grow more than twice as much as the eurozone as a whole, where GDP will advance by 0.9% in 2023 and to 1.5% in 2024. Spain’s growth will also be much higher than that of France (0.8%) and Italy (1.1%), and if we look outside the EU it will also be higher than that of the United Kingdom (0.4%) or the United States (1.8%). The government values very positively the figures published by the IMF on Spain, as it is “one of the largest upward revisions”. “Spain will have the highest growth of the main developed economies in 2023 and 2024, with a growth that this year will be almost triple that estimated for the eurozone,” the Ministry of Economic Affairs said.

After two very hard years for the tourism sector, the ‘boom’ experienced since the second half of 2022 and so far this year have allowed it to surpass pre-pandemic figures. Tourism will close the year representing 12.6% of the national GDP, equaling the data of 2019, according to figures from Exceltur. This represents earnings from tourism of 178.8 billion euros this year, which is almost 14% more than the sector had in 2019.

Fundamental pillar

Experts explain that tourism continues to be the fundamental pillar on which the Spanish economy is based, despite the fact that in the years of the pandemic some voices called for a reindustrialisation of the country so that the economy would be strengthened and would not depend so much on services, but so far this has not been the case.

María Jesús Fernández, senior economist at Funcas, said that the high growth rates of late 2022 and early 2023 have been due to the foreign sector since domestic demand “has fallen in both periods”. Fernández said the gradual weakening of the world economy (especially the eurozone), may impact on tourism, in addition to the fact that this sector “no longer has the margin” to make GDP grow much more because it has already surpassed the pre-pandemic level.

“The macro data is not disputed by anyone, but that does not mean that in the micro level there are people who are having a hard time, especially the lower income bracket,” said José Ignacio Conde-Ruiz, professor of Economic Analysis at the Complutense University and deputy director of Fedea.

Fight against inflation continues

The IMF warns in its report that the fight against inflation continues, as it has become the Achilles heel of the eurozone. The agency is calling for central banks to build fiscal buffers and for governments to target tax cuts to the most vulnerable groups. “Improving the supply side of the economy would facilitate fiscal consolidation and lead to a smoother decline in inflation towards target levels,” the IMF said.