The Spanish economy kicks off the year on a good footing
The indicators that have been published during the opening months of the year paint a picture of a buoyant Spanish economy in Q1 2025, albeit with a slightly less vigorous growth rate than in the previous quarter.
The sector’s PMI has risen to an average of 55.6 points in the first two months of the year, compared to 55.1 in Q4 2024. The improvement in activity continues to be supported by strong demand, especially in the field of trade, which in turn is being driven by a booming tourism sector. In this regard, the latest data confirm the strength of tourism activity: in January the number of foreign tourists who arrived in our country reached 5.1 million, which represents a growth rate of 6.1% year-on-year and of 20.7% versus pre-pandemic levels (January 2019).
The signals are somewhat weaker in industry, as the manufacturing sector’s PMI in February fell below 50 points (49.7) for the first time since January 2024, although the January-February average is still within expansive territory (50.3 vs. 53.6 in Q4 2024); both production and new orders are slowing down, in a context of weakening demand amid a climate of high uncertainty. The signs are slightly more positive on the employment side in the industrial sector, with the number of registered workers up 1.7% year-on-year in January-February, compared to 1.6% in Q4 2024. Overall, the industrial sector is being weighed down by sluggish demand from our main European partners and by the question marks surroundings the US’ tariffs policy. In this regard, although Spain’s direct exposure to these changes is relatively low, sectors such as the agro-industrial or pharmaceutical industries could be particularly affected; in addition, the current geopolitical uncertainty could lead to the postponement of investment projects.
As for consumption, the indicators point to a moderation in its growth rate, following a good end to 2024. For instance, the growth of passenger car registrations normalised in January-February, standing at 8.4% year-on-year, following an extraordinary figure of 14.4% recorded in Q4 2024, which was largely driven by a December figure that was the best for that month in 4 years. In annualised terms, the number of registrations exceeds one million units – a milestone not surpassed since mid-2020. The CaixaBank Research indicator, for its part, shows that Spanish card activity is moderating in the opening weeks of the year, with growth to 21 February of 3.8% year-on-year, slightly below the rate recorded in Q4 2024 (4.0%).
The average number of registered workers in February increased by 100,340 people, slightly below last year’s increase (103,621) but notably above the average of 70,616 for the months of February 2014-2019. Correcting for seasonality, employment recorded a monthly increase of 58,735 registered workers, the biggest rise since March 2024; this places the average monthly growth in Q1 so far at 47,246 workers, surpassing the average for Q4 2024 (44,522). In addition, there has been a particularly notable improvement in hiring under permanent contracts. As such, the temporary employment rate continues to fall and now stands at 11.8%, 0.2 pps below the previous month and the lowest rate in the series.
According to the flash indicator published by the National Statistics Institute (INE), headline inflation stood at 3.0% in February, 0.1 pp more than the previous month and the highest rate since June 2024. In the absence of the breakdown by component, the INE notes that this result is primarily driven by the increase in electricity prices, which continue to be affected by the VAT increase from 10% to 21% applied to the electricity tariff in January. In contrast, core inflation (excluding energy products and unprocessed food) continues to steadily decline and fell by 0.3 pps, reaching 2.1%, the lowest level since December 2021. Thus, the underlying price trends continue to follow a downward path, despite the upturn in the headline indicator.
In 2024, the balance of trade recorded a deficit of 40.276 billion euros, which is equivalent to 2.5% of GDP, 0.1 pp less than in 2023. This slight correction was thanks, exclusively, to the improvement in the energy balance. Specifically, the energy deficit fell by 3.4% to 35.929 billion euros, thanks to the fall in imports (–8.0%), with purchases practically stagnant in volume terms (–0.3%) and prices falling sharply (–8.3%). In contrast, the balance of non-energy goods deteriorated sharply, with its deficit increasing by 29.7% to 4.347 billion, in a context of a slowdown in trade (1.3% growth in exports and 1.5% in imports); in this regard, non-energy exports fell in volume terms for the second consecutive year, by 0.9%, reaching their lowest levels since 2020. For a more detailed analysis of the foreign sector balance in 2024, see the Focus «Excellent records in the foreign sector in 2024» in this same report.
Following the temporary setback in activity in 2023 (–10.2%), associated with the high interest rates, the number of sales transactions grew by 10% in 2024, to 642,000 homes. This is the third best record in the historical series, behind only the peak of 2007, in the midst of the real estate boom, and the 2022 rebound after the pandemic. This revival is a response to several factors: the shift in monetary policy, the strength of the economy and, in particular, of the labour market, together with the recovery of household disposable income and population growth driven by positive migration flows. In a context of rising demand and still insufficient supply, prices continue to rise: in Q4 2024, the appraisal value of housing increased by 2.7% quarter-on-quarter and placed the year-on-year rise at 7.0%, the biggest since Q1 2007.
