BBVA Research expects Catalonia to be the region of Spain that will create the most jobs in both 2024 and 2025

According to BBVA Research’s ‘Catalonia Economic Outlook – 2024’ report, presented on Wednesday by Miguel Cardoso, BBVA Research’s chief economist for Spain, and José Ballester, BBVA’s regional head for Catalonia, growth within the Catalan economy will remain strong throughout 2024 and 2025. BBVA Research reckons that Catalonia’s GDP could grow by 2.6 percent in 2024 and by 2.1 percent in 2025, supported by a wider economic improvement across Europe, albeit shackled by tourism, which is already nearing maximum capacity with high season in full swing. In 2025, Catalan GDP looks set to be 7 points above the 2019 level.

Economic trouble within Europe weakened employment growth in Catalonia in the second half of 2023, affecting virtually the entire region. However, 2024 has witnessed a clear improvement, especially in Barcelona and its metropolitan area, with differentially positive data, while more inland areas have been faring less well. Professional activities became the main driver of Social Security enrollment figures in the first half of 2024 and, together with public services, have been leading the charge since the start of the year. Other sectors such as hospitality, trade and finance have also been busy recruiting over this period. This improvement suggests that the unemployment rate in Catalonia could fall to 8.3 percent on average in 2025, with up to 192,000 new jobs created by 2025. If these forecasts hold up, Catalonia will be the region of Spain to create the most new jobs throughout this year and the next.

Tourism has been a key factor driving this improvement in economic activity. Spending with foreign cards at BBVA POS terminals was up 24 percent year-on-year in the first quarter of 2024 in Catalonia, compared to +22 percent in Spain. The information available for the second quarter of 2024 points to growth of 22 percent. According to forecasts, that will make it two years of Catalonia outgrowing the rest of Spain. So far this year, the expenditure recorded in Catalonia is 1.6 times higher than in the same period of 2019. For Spain as a whole, it is 1.8 times higher.

Total card spending in the region, as recorded by BBVA, either through its own customers’ spending figures, or by looking at transactions using BBVA POS terminals, grew by around 9 percent year-on-year in the first half of 2024, similar to that of Spain as a whole. Notably, consumption associated with transport, other services and hospitality was up 15 percent, thus pushing up total spending. Meanwhile, spending in department stores and on sports and toys failed to grow.

Growth picks up in first half of 2024

Investment in other buildings and construction is beginning to respond to the pick-up observed in the execution of funds received under the Spanish Recovery, Transformation and Resilience Plan (PRTR). Moreover, the amount of public works tenders is now 2.5 times higher than what it was pre-pandemic. Therefore, it is likely that the figures for 2024 will reflect the impact that the funds have had on economic activity and help shore up public investment going forward.

Industrial production in Catalonia began to recover in the second half of 2023. Notably, this improvement has continued throughout the first half of 2024, on the back of capital goods and a sharp upturn in consumer goods and, to a lesser extent, intermediate goods. This performance has benefited from the gradual disappearance of the bottlenecks that affected global production chains not that long ago. Higher demand within Europe and Spain is also likely to help consolidate production growth moving forward. Indeed, industry may need to stand up and pick up the slack if we ultimately see a lull within the services sector.

However, this growth within industry has yet to feed through to exports of goods in Catalonia. In 2023 as a whole, Catalan exports grew by 6.7 percent in 2023 as a whole (-1.0 percent in Spain), whereas in the second half of 2023 and the first half of 2024, the correction in sales appears widespread. All in all, the figures are positive, as in nominal terms foreign sales were up 36 percent on 2019 (32 percent in Spain). In real terms, the last 12 months are still 5.0 percent above the pre-pandemic level (-1.2 percent in Spain), despite the recent slowdown. In the short run, lower interest rates, low energy prices and a possible improvement in competitiveness will shore up industry, which could help exports recover.

Investment in capital goods in Catalonia will see growth once again in 2024, but at a slower pace than in previous years. It currently stands at 28 percent, above pre-crisis levels (40 percent in Spain). A context of lower interest rates, recovery of European demand, greater public investment from NGEU funds, the modernization of machinery and transportation equipment, and fewer bottlenecks will continue to boost industrial activity, and with it, investment. Both construction and industry have a greater weight than in Spain, and therefore, if this acceleration of investment takes place, it could have a greater impact in Catalonia.

Some restrictions persist that could moderate future growth

BBVA Research is predicting GDP growth of 2.1 percent in Catalonia in 2025. However, there are some bottlenecks, such as labor shortages and weak demand, that could moderate future growth. Half of the industrial companies (49 percent) in Catalonia report that weak demand is a factor that limits production. In addition, the aging population poses an obstacle for growth of domestic demand and greater employment. Labor shortages in the region are not yet a limiting factor for the industry (although they are in other sectors, such as tourism), but they could become one when the pace of production improves. Therefore, attracting talent and training the unemployed is essential in order to offset the reduction in the working-age population and the labor shortage. Immigration also helps to delay this risk.

In recent months, household income has risen, but this has not resulted in a proportional increase in spending. So far this year, spending in Catalonia by visitors from the rest of Spain has fallen seven percent YoY. Only visitors from the Basque Country have increased their spending, while spending by residents in other Catalan provinces has increased by a nominal one percent. Meanwhile, spending by Catalans outside of Catalonia has risen by five percent, especially in  the Basque Country and Valencia regions.

Regulatory uncertainty is hurting investment in key sectors, such as transport and housing. New car registrations in Catalonia remain below 2019 levels: 34 percent in the case of passenger cars, and 12 percent for commercial vehicles. Moreover, after a relatively rapid acceleration up to 2022, housing transactions in Barcelona and Girona show signs of drying up, with the exception of foreign transactions in the province of Barcelona. Meanwhile, Lleida and Tarragona, with lower prices, have been showing greater buoyancy in recent quarters.

In addition, labor costs are likely to continue to rise over the next few quarters. In Catalonia, the reduction in the maximum legal working day could affect 8 million employees who during the last year had an effective and agreed working week of more than 37.5 hours (57.8 percent of the total). Catalonia could be one of the regions where more workers will be affected by the change in regulations, given the high share of the services sector.

Finally, the new fiscal framework in Europe will require significant and sustained adjustments over time in several economies, including Spain, from 2025 onward. Countries with deficits above 3 percent of GDP and public debt levels above 90 percent will have to commit to implementing structural consolidation measures of between 0.4 and 0.6 percentage points of GDP per year. The gap between current levels and targets is so wide that efforts will have to be extended by at least five years. Going forward, there is considerable uncertainty as to how these targets will be passed on to regional governments.