The latest figures from the statistical office in Madrid show that the Spanish economy grew by a whopping 5.5 percent last year. This puts the southern European country in a better position than most northern European countries.
Street renovation in Valencia
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Tourists have returned en masse after the pandemic – and despite the war in Ukraine and the energy crisis: Mallorca, the most visited European holiday island, was almost fully booked in the past high season. The springtime Canary Islands, Europe's most popular winter destination, are also full again. The construction of holiday homes on Spain's coasts is also booming again. All over the country, a sea of construction cranes is evidence that Spain's economic engine is running at full speed.
The Spanish economy grew by 5.5 percent last year. This puts the southern European country in a better position than most northern European countries, many of which look enviously towards the Pyrenees. It is the biggest economic plus that has been registered in Spain for 20 years – tourism and the construction industry are the locomotives. In Germany, growth in 2022 was estimated at 1.9 percent, in the entire euro zone at 3.5 percent.
Well booked again: Hotels and holiday apartments in Spain, here at the Palya de Palma in Mallorca
Proud Premier
Even Spain's Prime Minister Pedro Sánchez was pleasantly surprised when the latest data emerged for 2022, which has been heavily impacted by Russia's attack on Ukraine and the ensuing energy crisis. For 2023 and 2024, the International Monetary Fund (IMF) also predicts above-average growth for the Spaniards. “Our country is getting through the crisis better than the countries around us,” says Sánchez, not without pride.
And not only in terms of growth, which has ensured that unemployment in Spain has fallen to its lowest level in 15 years – although it is still alarmingly high at 13 percent today (Germany 5.7 percent, EU average 6.1 ). Spain is also doing amazing things when it comes to fighting inflation: in December 2022, the price increase was only 5.5 percent – in the entire EU the rate was 10.4 percent. In January, when eurozone inflation fell to 8.5 percent, Spain continued to be a model in terms of price restraint.
Spain's Prime Minister Pedro Sanchez, here with Chancellor Scholz in La Coruña (October 5, 2022)
What is the recipe for success?
How did the Spaniards manage to turn down the spiral of inflation, which also reached ten percent in the Spanish kingdom last summer? Answer: Especially with government interventions in the food, rent and energy markets – those spending areas that cause the biggest holes in consumers' wallets and bank accounts.
Spain's electricity price brake in particular is setting a precedent: after the good experience in Spain, the EU also agreed on a cap in December. Spain introduced this mechanism in the summer of 2022 and is now one of the EU countries with the lowest electricity prices. This cap stipulates that the wholesale market price for the gas that is burned by Spanish power plant operators to generate electricity is limited by law. Since the cost of the gas used to generate electricity has a significant impact on pricing, electricity tariffs fell noticeably after the cap was introduced.
Spain's government also installed a brake on apartment rents, which is now also being discussed across Europe. This limits the annual increase in residential rents to a maximum of two percent. Until then, the rent in Spain could be increased in line with the rate of price increases, which caused difficulties for many apartment tenants.
Everything good in Spain? These people are demonstrating against the Sanchez government and its plans to form alliances with separatists in Catalonia and other regions.
The price: 45 billion euros
At the beginning of 2023, an additional step followed to protect citizens from the consequences of the inflation crisis: VAT was eliminated on staple foods. Bread, flour, milk, eggs, cheese, fruit, vegetables and grain products became cheaper as a result. The massive state subsidy for local public transport also helped to lower the inflation rate: A zero-euro ticket for S-Bahn was introduced, train and bus subscriptions became cheaper by 50 percent nationwide. In Mallorca and the Canary Islands, all local transport is free for the islanders.
“We have mobilized 45 billion euros,” Sánchez reported in the Spanish parliament these days. For crisis packages that primarily benefit families, but also companies. When it comes to financing, the fact that tax revenue is bubbling up and is at a record high in view of the booming economy – but also as a side effect of the general rise in prices – helps with the financing.
Sánchez's centre-left government of social democrats decided to cushion the special expenditures of the crisis and the left-wing Podemos party a temporary solidarity levy for banks, energy companies and multi-millionaires. Sánchez: “There must be a fair distribution of the burden.”