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ANALYSIS: Is Spain heading for a recession?

Conor Faulkner
Conor Faulkner - [email protected]
ANALYSIS: Is Spain heading for a recession?
Spain's Economy and Business Minister Nadia Calviño has denied Spain is on its way to a recession. (Photo by John THYS / AFP)

Fiscal watchdogs are predicting that Spain will enter a technical recession in 2023, but the Spanish government is questioning the forecasts. What would a recession involve and how will Spain fare compared to other European countries?


Economies across the Eurozone and the world have faced turbulence in recent years. With the temporary shutdown of the global economy during the COVID-19 pandemic, rampant inflation pushing up the cost of living, and a volatile energy market caused by Russia's invasion of Ukraine, the economic outlook across Europe is worse than it has been since the dark days of the 2008 financial crisis.

Many countries are bracing for a recession, but what's the economic outlook in Spain, and should we be preparing for a recession to start off 2023?


What is a recession?

Recession is an economic term you hear quite a lot in politics. It's often used by politicians to justify policies, or to warn against others. But what actually is a recession?

Well, the technical definition of a recession is when a country's economy experiences a decline for 2 consecutive financial quarters in Gross Domestic Product (GDP).

Is a recession coming to Spain?

The French bank BNP Paribas certainly believes so, predicting the Spanish economy will enter into a technical recession by falling 0.4 percent in the final quarter of 2022 and 0.2 percent in the first quarter of 2023.

But it's not just foreign banks predicting a tricky New Year for the Spanish economy,

Spain's own Independent Authority for Fiscal Responsibility (Airef) has warned that the Spanish economy will enter a technical recession in the first quarter of 2023, largely because negative GDP in the fourth quarter of 2022 will extend into the first quarter of 2023. However, the agency maintains its growth forecasts of 1.5 percent for 2023 as a whole, though that is six tenths less than the government's own forecasts.

Night falls on Benidorm. Spain's slowing growth is largely down to poor performance in the real estate sector, where activity contracted by 2.5 percent in Q3, and a drop in exports and business investment. Photo: Maksim Ivanov/Unsplash

Yet predictions of 'technical' recession do not mean that the Spanish economy is destined for a severe recession in the mould of 2008. "The definition of technical recession is that they [consecutive GDP decline] are chained two quarters in a row," Cristina Herrero, President of Airef, said recently. "Does that imply that there is a recession? We have our doubts."

For the fourth quarter of 2022, Airef expects the Spanish economy to fall by between 0.2 percent and 0.3 percent, although the worsening situation across other Eurozone economies could lead to a reassessment of these estimates. For the first quarter of 2023, growth rates are anticipated to mirror those at the end of 2022, although with such volatility at the moment, things can quickly change.

So what are the economists saying, in layman's terms?

That the Spanish economy will grow very little, or even decline slightly, at the end of 2022, will likely continue that trend in early-2023 and possibly drop into a 'technical' recession. Even if Spain doesn't fall into the negative, its GDP growth rate looks likely to stagnate at the very least.

READ ALSO: Rising inflation in Spain: Six cost-cutting ways to fight it


Spain's government says there won't be a recession 

But Spain's First Vice President and Minister of Economic Affairs, Nadia Calviño, has rejected the Airef forecasts, as did Prime Minister Pedro Sánchez on October 27th.

Although Calviño and the Spanish government do except the economy to experience some kind of slowdown, she has contradicted predictions of a technical recession and questioned the accuracy of forecasters.

"Economic indicators do not point to a technical recession," Calviño said on Spanish television. "There were analysts who said that we were going to go into recession in the second quarter of the year and we have had a record quarter, with a growth of more than 1.5 percent and year-on-year growth above 6 percent. The forecasts must be taken very cautiously and we must be prepared for the worst, being very cautious, and that is what we are doing," she added.

Calviño pointed the recovery of Spain's tourism sector following the COVID-19 pandemic, and also emphasised that the Spanish economy is expected to grow the most among large European economies next year. In particular, she said, the Spanish energy market is one of "the least exposed" to market volatility because it has far less energy dependence on Russia than other Eurozone economies such as Germany.

She did, however, accept that the current economic situation is "very delicate." For 2022, the Government expects overall economic growth of 4.4 percent, and Spain's year-on-year increases in economic activity of 6.7 percent in the first quarter and 6.8 percent in the second quarter of 2022 practically ensure that this estimate could be reached, and is factored in to the expected slowdown in the economy in the third and fourth quarters.



While watchdogs and politicians argue over whether Spain's economy 'technically' enters a recession or not, and question the accuracy of forecasts, perhaps a better way to judge the strength of the Spanish economy is to compare it to other European economies for the entire year. BNP estimates that the French economy, for example, will grow by 2.3 percent in 2022 and just 0.5 percent in 2023. Germany is predicted to grow by 1.4 percent and 0.4 percent, respectively.

READ ALSO: How Spain’s cost of living increase is worse than in France and Germany

Spain's annual GDP growth for 2023 on the other hand, according to figures from the European Commission, is forecast to be 2.1 percent.The ECB has put the Eurozone wide forecast for 2023 is 0.9 percent growth.

BNP views recession in Europe as "inevitable" in the last quarter of 2022, and likely to move into 2023, although it is not expected to be particularly deep thanks due the support of public sector spending.

Regardless of whether the Spanish economy meets the technical conditions of a recession or not, it seems that growth will be teetering around zero, and close to stagnation at best, recession at worst. The effects of this will, of course, be felt most severely by consumers, who have faced record levels of inflation.


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