Eco Pulse

Spain | Leading the way in Southern Europe


As expected, Spanish inflation slowed in February. In year-on-year terms, the Harmonised Index of Consumer Prices (HICP) rose by only 2.9% (-0.6 percentage points compared to January) due to an increase in energy price deflation, itself brought about by favourable weather conditions.1 Like other countries in the eurozone, inflation in services persists in Spain, the latter remaining the main component contributing to overall inflation (contribution of 1.9 pp).

After the record seen in tourism in 2023, activity is not slowing at the beginning of the year. Although the number of arrivals was slightly lower in January than in December (-7.2% m/m in January2), the number of travellers nevertheless stood at 5 million, a historic level for this month. This strength of the Spanish tourism industry has had an automatic impact on activity in the services sector. The associated PMI index continued to rise, reaching in February, its highest level since May 2023 (54.7; +2.6 points). Business optimism about activity in the coming months has strengthened, also supporting employment (53.6; -0.6 points).

Remarkably, net job creation remains significant (+73,000 jobs over a month in February), particularly in the education and hospitality sectors. The number of unemployed reached its lowest level for a February since 2008, at 2.66 million.3 This robustness seen on the labour market, combined with strong wage growth (+4.2% y/y in Q4 2023), will enable further stimulation of household consumption, which should therefore remain one of the main drivers of Spanish growth for at least another quarter.

On its part, manufacturing activity, which had contracted since April 2023, returned to the expansion zone in February (manufacturing PMI at 51.5; +2.3 points), buoyed by the increase in new orders and therefore in production.

Due to these good performances in these two sectors, the PMI Composite index improved (53.9; +2.4 points) and, above all, remains at a level well above that seen in the eurozone as a whole (49.2). We therefore expect Spanish growth to remain significantly higher than growth in the eurozone throughout the year. According to our forecasts, Spanish growth should stand at 0.4% q/q in Q1, before picking up more sharply from Q2, reaching 0.6% q/q at the end of the year.

[1] In February, Storm Louis boosted wind power production, and sunny conditions increased solar power production, lowering the price of electricity.

[2] Data not seasonally adjusted (NSA).

[3] Seasonally adjusted data (SA).

Article completed on 20/03/2024