Spain 'divorce' Germany and maintains its strong growth

MADRIDDespite global trade tensions and fears of a recession in the United States, the Spanish economy will grow strongly again this year, especially when compared to other European economies. In fact, the Bank of Spain has revised upwards the rebound of the gross domestic product (GDP, the indicator that measures economic activity) in 2025 and places it at 2.7%, two-tenths above the forecast published in December, when the supervisory body estimated a growth of the Spanish economy of 2.5%.

To begin with, the upward revision published this Tuesday is explained by the latest statistical data on the evolution of the economy – the National Institute of Statistics has confirmed strong growth in the fourth quarter of 2024, as well as for the year as a whole. However, the Bank of Spain also notes more "dynamism" in household income, and therefore expects private consumption to be more robust. "The surprise in household disposable income and employee compensation, together with the strength of the labour market, point to greater vigour in private consumption," explains the body headed by José Luis Escrivá.

"At such an uncertain and complicated time, the Spanish economy continues to surprise on the upside and shows a robust growth rate," reiterates the supervisory body, which expects that this first quarter of the year, that is, between January and March, the GDP will grow between 0.6% and 0.7%. "This vigour contrasts with the dynamism observed in the euro area as a whole," notes the Bank of Spain (BdE), which estimates a growth of a timid 0.2% in the euro area in this first quarter.

Can Spain grow if Germany does not?

"Can we continue to grow [Spain] if Germany does not grow?", asked the director general of economics of the BdE, Ángel Gavilán, in a briefing This Tuesday with the media. Gavilán confessed that the question has been hovering over the supervisory body for some time, especially taking into account that the good progress of the Spanish economy depends on the Germanic country, one of its main commercial partners. Although the entity does not have a complete answer, it does perceive some changes that could explain why the gap between what are two historical partners is occurring – and above all, continuing. "It seems that there is a substitution by Spanish exports of German exports in the last five years," said Gavilán. That is to say, there are European countries that instead of buying in Germany are opting for the Spanish market.

"The next question is whether this situation will be temporary or permanent," said Gavilán. Despite admitting that some time must pass before it can be verified, he pointed out that there are elements that open the door to thinking that this could become structural, such as the low energy costs in the State. "These prices can help move production to Spain, which is one of the economies with the greatest capacity to produce renewable energy," he said.

As for the other elements that drive this growth of the Spanish economy, after a long time the Bank of Spain has detected an improvement in investment, particularly that linked to equipment and material for transport. In addition, public spending continues to provide a breath of fresh air and business turnover remains stable.

These forecasts, however, have been drawn up without "explicitly" taking into account either the possible application of tariffs by the White House in Mexico, Canada and the European Union or the possible response that this generates. In addition, the Bank of Spain does not incorporate, for now, the impact of a possible fiscal expansion in Europe due to the increase in defense spending, or that of a recession in the US economy. "These are projections subject to extraordinary uncertainty and present downward risks in terms of economic growth," the Bank of Spain assumes.

The negative note, inflation

The bittersweet part of the new forecasts is inflation. The agency revises the average inflation for 2025 to 2.5%, which is four-tenths more than the December forecast. This upward revision responds to the pressure of energy prices observed in these first months of 2025, especially gas prices, as well as a future perspective in which they are not expected to fall. However, sources from the agency clarify that the forecast has been prepared without taking into account the downward surprise in recent days of the price of oil, coinciding with a OPEC+ alliance announces increase in production in April.

One of the consequences of higher inflation is the increase in pension bills. The Bank of Spain expects it to be higher than the Spanish government has planned, which, in the opinion of the bank, will make it difficult to comply with European fiscal rules. In fact, the Spanish government's latest pension reform is expected to pass its first examination by the Fiscal Authority this spring, which will have to indicate whether or not there is a deviation in spending.