The Spanish foreign sector, one of the main pillars of growth in recent years, is facing a major challenge: the European economy, i.e. the main market for our exports, is giving worrying signs. It was expected that the timid improvement noted at the beginning of the year would become stronger, thus leaving behind the shock of the multiple crises that have hit the continent. In its June forecasts, the European Central Bank (ECB) predicted a growth of 0.9% in the eurozone GDP for this year, three-tenths more than in March, and around 1.5% in the next two years, this being a growth rate similar to that recorded before the pandemic. A kind of return to normality. The reality is more like a slowdown shrouded in many unknowns. European industry is not recovering (the purchasing managers' indicator, PMI, remains in contractionary territory), while activity is moderating in services (i.e. the PMI is approaching the threshold that marks stagnation). Credit with long-term maturities is also not taking off, as this is the type of financing most closely associated with productive investment, a crucial variable for dealing with the different transitions. Only short-term loans are picking up, which could reflect cash flow problems, and in any case is in line with an environment marked by uncertainty.
If the eurozone surprises on the downside, the opposite is happening on the other side of the Atlantic, with US GDP growing by 2.8% in the second quarter (in annualised terms). The risk of Europe falling behind is therefore increasing. This is not a recession, but rather a relatively weak growth path that is due to structural factors, such as the adjustment process of Central European industry, but also to economic policy: the European Union has not yet found the answer to the industrial and commercial policies of the other major powers. For the moment, the most operational initiative consists of reactivating fiscal rules, resulting in a simultaneous effort to contain deficits, even in the limping economies. In short, everything comes together in a loss of dynamism in the exports of Spanish companies. Although this circumstance already occurred after the start of the war in Ukraine, without affecting growth, on this occasion the impact could be more noticeable. First, because the expansion of tourism – a variable that acted as a compensating factor in the energy crisis in the face of the slowdown in trade in goods – is reaching its peak. Second, because fiscal policy has no room for economic action. In this situation, the ECB should make a move by proceeding to a new interest rate cut in September. Disinflation is uneven and subject to ups and downs, but weak demand could help to curb service prices. Wage agreements show some signs of moderation both in the eurozone as a whole and in Spain. However, a rapid monetary relaxation should not be expected, so the stimulus provided by the central bank will be limited and gradual. In principle, the European downturn will be reflected in the GDP data for the second quarter, with a lower advance than that recorded in the first part of the year. The lower external traction should materialize more clearly in 2025, with growth slightly below 2%, and also a lower contribution from international trade than in previous years. However, the growth of the Spanish economy will remain at the forefront of the other major EU economies. But there is no room for complacency because our economic and social imbalances can only be corrected with persistent action. And because the risk of European decline, although it does not affect everyone equally, is becoming more tangible every day.
Employment
The number of employed people in Spain increased by 0.3% in the second quarter, according to data from the Active Population Survey (EPA) seasonally adjusted by Funcas. This is two-tenths less than in the previous quarter, supporting the trend towards a slight deceleration of the GDP. The employment rate – the proportion of people aged 16 to 64 who have a job – rose to 67.4%, approaching the Eurozone average and surpassing Greece, Italy and Romania. This last result is due to the fact that proportionally fewer people are entering the labour market in these three countries. Raymond Torres is the director of Economic Situation at Funcas. In X: @RaymondTorres_Follow all the information on Economy and Business on Facebook and Twitter. Xor in our weekly newsletter