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Spain appears to be shaking off the pandemic hangover as the Bank of Spain forecasts GDP will grow by more than 4 percent in 2022, meaning the country is outperforming France, Germany, Italy and the UK.

Summer may be over but visitor numbers to Spain are almost back to where they were pre-Covid, reflecting a broader recovery in the Spanish economy.

Two-thirds of this year’s growth is credited to the revival of tourism, “If 2022 looks like being a good year, then 2023 will be even better,” said Laura de Arce, who manages tourism in the city hall of Marbella, on the Costa del Sol. “And 2024 and 2025 will be spectacular.”

The upmarket resort of Marbella is just one of many popular holiday destinations that have had a tumultuous couple of years due to the Covid pandemic.

In 2019 a record 83 million tourists visited Spain, but as the pandemic took hold in 2020 that figure plummeted to less than 20 million and last year's figures were only slightly better.

Spain’s economy suffered the worst decline within the EU, 11.3 percent, however, this year the number of visitors to the country is almost back to pre-pandemic levels

Tourism isn’t the only factor that is providing a timely boost to the economy as Spain has been the beneficiary of 70 billion euros from the EU’s Recovery and Resilience Facility (RRF), 30 billion of which has already been released.

Spain is the second biggest receiver of the funds, with Italy being the biggest and the Spanish government has commended their arrival as a ‘defining moment for the economy.’

Speaking to The Irish Times, Manuel de la Rocha, head of economic affairs in the prime minister’s office said “The European funds are benefiting this country tremendously as it moves to the modernisation of the economy with two key drivers: the green transition and the digital transition.”

Funds have already started to be distributed to tens of thousands of companies across Spain, with the government saying that along with the regulatory reforms they will help to transform the economy.

The most notable of these reforms is the new labour regulations that were approved in February. This has been accredited with helping to bring Spain’s questionably high unemployment rate down to 12 percent. This is an improvement on the 16 percent of two years ago but still means that Spain has the highest number of people out of work in the EU.

“One of the perennial problems of the Spanish labour market has been the precariousness of a lot of the jobs that were created,” said De la Rocha.

“Since the labour reform was introduced we have seen an unprecedented drop in the rate of temporary contracts - in the past, one in 10 contracts were stable ones, now that has changed to one in four,” he added.

Although this is all positive news, the fact can still not be hidden that Spain’s youth unemployment still stands at 27 percent.

The country, like many others, is also struggling with the cost-of-living crisis. Consumer price increases reached 11 percent during the summer months before easing off slightly.

Prime Minister, Pedro Sánchez, has put a number of measures in place to help the people of Spain in regards to rising costs, including targeted energy subsidies, energy tax cuts, and across the board 20 cent per litre discount at petrol pumps and free rail travel for commuters.

In regards to the energy crisis many countries are experiencing, Spain’s relative isolation from the European grid means that it is less exposed. Gas is mostly imported from Algeria and the United States, and back in the spring the European Union granted both Spain and Portugal a special dispensation to cap the price of gas that is used to generate electricity.

Nevertheless, Portugal and Spain are still highly indebted countries, with Spain’s public debt being close to 120 percent of GDP.

Only this week, the governor of the Bank of Spain, Pablo Hernández de Cos, seemed to warn the government about spending recklessly, especially with the pension rise of 8.5 per cent that has been included in the 2023 draft budget.

“We have been through other periods, for example the property boom, when tax revenues were very high and then that was reversed very quickly with the financial crisis,” De Cos said, referring to the slump of a decade ago.

As the tough winter months grow nearer, it is believed that Spain is in a much better place than most of its European neighbours when it comes to facing the economic challenges that are upon us. But there is still no place for complacency.

Source

https://www.irishtimes.com/business/2022/10/19/spain-shakes-off-pandemic-hangover-as-economy-surges/