Spain shakes off pandemic hangover as economy surges

In Spain the summer may be over, but as far as the tourism industry is concerned, the sun is coming out.

“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.”

Marbella is just one of many tourist hubs which have been on a rollercoaster ride over the last two years. A record 83 million tourists visited Spain in 2019, including more than 2 million Irish. But as the pandemic gripped the world that plunged to fewer than 20 million in 2020 and last year was only marginally better.

Two years ago, Spain’s economy suffered the worst contraction in the EU — 11.3 per cent — in great part because of the impact of the pandemic on tourism and services.

Hosting foreign students and Revenue’s rent-a-room relief

---

Irish productivity myth debunked

---

Meme stock mania is unlikely to last

---

Can US modular home specialist deliver for Ireland?

---

Now visitor numbers are almost back to where they were pre-Covid, echoing a broader recovery in the Spanish economy.

The Bank of Spain’s forecast that GDP will grow by more than 4 per cent in 2022, has the country outperforming the likes of Germany, France, Italy and the UK.

Two thirds of this year’s growth is being attributed to the resurgence of tourism, reflecting how the Covid crisis has accentuated the industry’s influence.

Other factors

However, there are other factors providing a timely boost, including EU money from the Recovery and Resilience Facility (RRF). The beneficiary of €70 billion, €30 billion of which has already been released, Spain is the second-biggest recipient of the funds after Italy and the government has hailed their arrival as a defining moment for the economy.

“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,” Manuel de la Rocha, head of economic affairs in the prime minister’s office, told The Irish Times.

Tens of thousands of companies have started receiving these funds and the government says that, together with regulatory reforms, they will help to transform the economy.

The most noteworthy of those reforms has been labour legislation, approved in February, which has been credited with helping bring Spain’s notoriously high jobless rate down to 12 per cent — still the highest in the EU, but an improvement on 16 per cent two years ago. It has also brought stability to the jobs market.

“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.

But Spain is certainly not enjoying an economic miracle. The strides forward in the labour market cannot hide the fact that youth unemployment remains at 27 per cent.

The country has also been grappling with a cost-of-living crisis since late last year, driven first by post-pandemic demand and then by the impact of the war in Ukraine. This summer, consumer price increases reached 11 per cent, before easing off slightly.

The coalition administration of socialist Pedro Sánchez has introduced a barrage of measures to cushion the impact of rising costs on Spaniards. Those have included energy tax cuts, targeted energy subsidies, an across-the-board 20-cent-per-litre discount at petrol pumps and, more recently, free rail travel for commuters.

Spain’s relative isolation from the European grid means it is less exposed to the European energy crisis than many of its neighbours. It imports much of its gas from the United States and Algeria and in the spring the EU granted both Spain and Portugal a special dispensation to cap the price of gas used to generate electricity.

However, Spain and Portugal have also found themselves sharing a less welcome space — that of highly indebted countries. In Spain’s case public debt is close to 120 per cent of GDP, also putting it in the company of Greece and Italy.

This week the governor of the Bank of Spain, Pablo Hernández de Cos, appeared to warn the government about spending too freely, especially with a pensions rise of 8.5 per cent 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, invoking the slump of a decade ago.

As a tough winter approaches, the feeling is that Spain is better positioned than most of its neighbours to face the economic challenges to come. But with the trauma of both the euro-zone crisis and the pandemic still fresh in the minds of many Spaniards, there is little sense of complacency.