The foreign sector has acted as the engine of the Spanish economy throughout the first part of the year, given the weakness of consumption, which inflation and rate hikes to deal with have kept it in an almost comatose state. Exports of goods have recorded a historic record in the first quarter, increasing by 9.2% year-on-year and exceeding 132,026 million euros. At the same time, international traveler arrivals through May were barely 0.4% below pre-Covid levels and have set new highs in terms of spending. However, the weakness and uncertainty that appeared in a large part of the European economies -with the Eurozone in technical recession in the first quarter- threaten to clip the wings of that dynamism.
Europe is Spain’s main trading partner, with the European Union as the key destination for national merchandise, given that it was the destination of 63.8% of the total that was exchanged abroad between January and April. France was the main trading partner (15.6% of the total), followed by Germany (10.5%), Italy (8.6%) and Portugal (7.9%). On the side of exports of services and with regard to tourism, although the United Kingdom is the main issuer of tourists to Spain and 19.8% of the international travelers who arrived in the country come from there, the partners of the Eurozone have a very relevant weight, with France being the second issuer (13.5% of the total number of tourists who traveled to national territory from January to May), followed by Germany (12.8%).
This implies that, as a whole, the arrival of tourists from France, Germany, Italy, the Netherlands, Portugal, Belgium and Ireland accounted for almost half of the tourist arrivals in Spain in that period. “Reasonable doubts are emerging about the impact that the complex European economic outlook will have on the ability of the foreign sector to boost the Spanish economy,” warn the Economic Team, explaining that the slight technical recession in the euro area and the stagnation in Some member countries raise doubts about the possibilities that the Spanish foreign sector has of maintaining the very strong dynamism that it has been registering up to now. add, in addition, that the contribution to the growth of the tourism sector “has a more limited margin” than in 2022.
A ‘double recession’ in the Eurozone cannot be ruled out
For the moment, activity has resisted well in the first part of 2023, not only due to those endogenous factors such as the strength of exports beyond tourism and a labor market whose behavior has surprised positively, but also due to other exogenous factors such as cheaper of energy. These factors allow our country’s economy “to face the second half of the year as one of the most resilient economies in the Eurozone”, in the opinion of Rosa Duce, Chief Investment Officer of Deutsche Bank Spain.
This despite the fact that analysts such as Inversis warn that the indicators point to the euro zone economy growing modestly in the second quarter to end the year with an increase of 0.9%, without ruling out a “double recession”. that would occur at the end of the year if the ECB were to endure its monetary policy even more. At the moment, remember, the ECB does not expect to reach its inflation target of 2% in the medium term, which suggests that rates will remain at high levels for at least the next year and a half.
First signs of weakening in the economy
The ‘Economic and Financial Report’ presented last week by Esade recalled that in a more unstable environment, the weaknesses of the national economy are becoming more evident, so that the situation “could deteriorate in the coming months”. It has taken Spain three years to recover the level of GDP prior to the pandemic, the level of debt continues to be very high (it dismissed last year at 113.2% of GDP), the tightening of financial conditions due to the rise in interest rates it hits families and companies, and there is also a structural problem of lack of productivity, since the country continues to have the same level of GDP per capita as in 2005.
In the business school they already appreciated clear signs of weakness in the economic indicators at the end of June, especially in terms of affiliations (job creation has moderated). “It is as if we were preparing for a second semester with growth that is going to be weaker,” said Professor Manuel Hidalgo. The Bank of Spain (BdE) itself warned in its latest ‘Quarterly report and macroeconomic projections of the Spanish economy’ that uncertainty continues to be “high” and stated that in recent weeks some signs of slowdown have begun to be seen that responds to the aggressiveness with which the ECB has tried to curb inflation and cool down the euro economies to achieve this.
