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ECONOMY

Will Spanish economy really grow faster than all Euro countries in years ahead?

IMF projections put the Spanish economy growth at the front of the pack in terms of the bigger Eurozone economies, but the figures are a little more nuanced than that and the Spanish government has questioned the forecasts.

Published: 1 February 2023 17:23 CET
Will Spanish economy really grow faster than all Euro countries in years ahead?
IMF Chief Economist and Director Pierre-Olivier Gourinchas (C) and Division Chief of the Research Department Daniel Leigh (R) attend a press briefing for the World Economy Outlook update in Singapore on January 31, 2023. Photo: Roslan RAHMAN/AFP

The IMF has published its first global economic forecasts of the year, and according to ITS projections, Spain will be the European economy that will grow the most in 2023 and 2024 (among large economies), which includes Germany, France and Italy. 

However, this should be tempered somewhat by the realisation that these projections, though positive overall, are actually slight downgrades to Spain’s previous GDP forecasts. In fact, the Spanish economy was the only major Eurozone economy to have its forecasts downgraded, despite still leading the pack.

READ ALSO: Spain posts strong growth for 2022 despite inflation

According to the IMF figures, Spanish GDP is now expected to grow by 1.1 percent in 2023 and 2.4 percent in 2024, which represents a 0.1 percent decrease on previous predictions for 2023 and a 0.2 percent decrease for 2024 forecasts. These are the highest rates among the larger European economies though.

These figures differ quite significantly from the Spanish government’s own forecasts, however. In the government’s General State Budget (PGE) for 2023, growth was predicted to be 2.1 percent – almost double.

Taking the IMF’s figures, Spain would not recover its pre-pandemic production volume until 2024. The latest GDP data, released by the INE last week, still puts Spain 0.9 percent below the figure for the fourth quarter of 2019.

Along with the Czech Republic, Spain is the only country that has not fully recovered from the blow inflicted by Covid-19. 

Yet, despite that, and despite its downgraded forecast, the IMF still believes that the Spanish economy will grow the most among larger European economies.

The expected GDP growth of 1.1 percent in 2023 is ahead of projections for Germany (0.1 percent), France (0.7 percent) and Italy (0.6 percent) as well as being 0.4 percent above the wider Eurozone average forecast, which is 0.7 percent. 

Global outlook

According to the IMF figures, global GDP growth will slow to 2.9 percent in 2023 after growing by 3.4 percent in 2022. Production looks set to pick up in 2024 with a projected increase of 3.1 percent, but still a way off the average figure for the 21st century – 3.8 percent. The IMF points out that global GDP was “surprisingly solid” in the third quarter.

In terms of inflation, the IMF believes global inflation will gradually fall from 8.8 percent in 2022 to 6.6 percent in 2023 and 4.3 percent in 2024. All economic indicators seem to suggest that inflation has peaked and will continue to fall as the prices of fuels and raw materials decline.

“The rise in central bank interest rates to combat inflation and Russia’s war in Ukraine continue to hinder economic activity,” the IMF said, adding that the recent ending of China’s ‘zero-Covid- strategy “has paved the way for a faster recovery than anticipated”. 

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WORKING IN SPAIN

Why the Basque Country is Spain’s industrial powerhouse

Mining roots stretching back centuries, an astute transition to R+D, locally-run companies, and a special fiscal agreement with the government. When it comes to industry and jobs, the Basque Country is just different to the rest of Spain.

Published: 9 April 2024 10:20 CEST
Why the Basque Country is Spain's industrial powerhouse

The Basque Country is something of an exception in Spain. It’s one of the country’s smaller regions, with a little over 2 million people living there, yet also has one of the lowest unemployment rates in the country and the second highest per capita income after Madrid.

Much of this economic strength comes from a centuries-long industrial history in the Basque Country, as well as a bespoke fiscal agreement with the national government that gives the region greater control over taxes. In recent decades, it’s overtaken Catalonia to emerge as arguably Spain’s real industrial powerhouse.

Though it’s not what it was, industry is still the main economic motor in the Basque economy, making up almost a quarter (23.1 percent) of GDP according to INE data from 2022, meaning it’s the region with the second largest share behind only neighbours Navarre.

It also has a high percentage of people working in industry, 18.5 percent, which is well above the national average (11 percent) and it is also far and away Spain’s strike capital, accounting for around half of all industrial action in Spain. 

READ ALSO: Why the Basque Country is the strike capital of Spain

Though historically Barcelona was Spain’s industrial base for many years, a combination of factors have propelled the Basque Country to its status as Spain’s industrial powerhouse in recent decades.

As is often the case with this northern region, the Basques do things slightly differently to the rest of Spain. It has used its pre-existing industrial heritage to take advantage of new technologies, keep industrial hubs at home, introduced effective traineeships and career paths to keep the industrial motor going with local staff, all while benefiting from the regimen foral (chartered regime) that gives the region a level of fiscal autonomy (some would say unfair advantage) from the central government.

Industrial roots

But this is nothing new. The idea of the Basque Country as an industrial powerhouse goes back centuries to the mining industry. From as early as the 14th century, Basque iron-ore mining contributed to economic growth that outpaced many other parts of Spain, and then, in the 18th century, Basque industry shifted its attention to the steel industry.

Around a century or so later, in the 19th century, blast furnaces allowed Basque’s to export iron in bulk quantity, mostly to the UK. As a result of this thriving export business, the Basque Country underwent a period of industrialisation which not only boosted steel production due to increased iron ore production, but it also put Basques firmly in the tool and machinery industry and set the region up for a strong industrial future.

The Basque Country’s mining roots stretch to the 14th century. (Photo by CESAR MANSO / AFP)

Technological transition

One of the main reasons the Basque Country has emerged as an industrial power is its adaptability. Fernando Barciela, a long-time contributor to El País’ business section, has written on this transition, and how the industrial past set the Basque Country up for success in the future: “In the Basque country, the old blast furnaces, steel industries and tool manufacturing companies of that period have been transformed into a high-tech industrial infrastructure, which includes the automotive and aeronautics sectors, as well as new energies, [and] machine tools.”

As Barcelona’s industrial power wanted at the end of the 20th century, the Basques positioned themselves at the cutting edge of global industry and have established a highly successful export industry, something that contributes to the region’s wealth overall.

READ ALSO: Why are the Basque Country and Catalonia so rich compared to the rest of Spain?

Barciela notes that “they [Basque companies] export between 70-90 percent of their production, achieving surpluses for the region’s trade balance, of some €5 billion in one of the last few years.” Long-term investment in technology and R&D from the regional government has helped solidify the Basque Country as one of the most innovative parts of Europe.

As such, the Basque Country boasts the headquarters of major international industrial names like Iberdrola, Tubos Reunidos, Aernnova Aerospace, Arcelor, Cie Automotive, Irizar, Mondragón, and ITP Aeronautica, among many others. And unlike any other regions that have multinational companies based there, or indeed other countries, the majority of the companies based in the Basque Country are owned and run by long-established Basque families, many of whom work together.

There are also apprenticeship schemes to help local youngsters join industries easily and a more balanced population distribution across the Basque Country as R+D plants and factories are found in smaller towns and villages, not just close to the big cities of Bilbao and San Sebastián.

Barciela also suggests that the Basque Country’s industrial base (and economy more broadly) was insulated from the worst effects of the financial crisis and “it was also a great help that the Basque savings banks were saved from the property bubble. This meant that most of them avoided going bust.”

While around the rest of the country most banks focused on property and mortgages, “the Basque savings banks continued to support industrial projects developed by the companies and backed by the government in Vitoria.”

Bilbao’s port is the most important in northern Spain. Photo: ANDER GILLENEA/AFP

The future

However, the future isn’t entirely rosy for Basque industry or its economy. According to Spanish public broadcaster RTVE, the region’s economic activity rate is falling and is currently lower than the national rate (57 percent compared to 59 percent nationally).

Similarly, the decreasing weight of its regional GDP in terms of the national economy, and the combination of an ageing population and a worsening public health system, all indicate that changes could be needed in the future. These sorts of structural changes will be costly and could impact on the Basque Country’s position as one of the wealthier regions of Spain. Though with its regimen foral it is unclear how big of an impact this will have.

Even the traditional high wages in the Basque Country are falling closer to national levels. Jon Bernat Zubiri Rey, professor of Economics at the Universidad del País Vasco, told RTVE that in “the Basque Country there was a large wage differential in relation to Spain, but this has tended to decrease” in recent years.

Similarly, the Basque economy itself is beginning to change. Though its industrial base is so well established that it will always likely form the backbone of the Basque economy, the tourist sector, traditionally not as integral there compared to other parts of Spain, has grown since the disbandment of ETA and pivoted to the tourist sector, perhaps most notably with then opening of the Guggenheim museum Bilbao in 1997.

Basque hotels registered 3.6 million check-ins in 2023, 10.4 percent more than in the previous year.

The Basque Country is also having a slower post-pandemic economic recovery than most regions. In 2023 the regional economy grew by 1. percent, well below the national average of 2.5 percent.

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