The 2024 European Commission Country Report on Spain provides a comprehensive analysis of the nation's economic performance, fiscal health, and structural challenges within the framework of the European Semester. In 2023, Spain's economy demonstrated resilience, achieving a real GDP growth of 2.5%, despite external challenges such as geopolitical uncertainties and tightened monetary policies. This growth was primarily driven by robust labor market developments, which sustained consumer spending, and positive contributions from net exports and government spending. However, overall investment growth remained subdued, with a widening gap in the investment-to-GDP ratio compared to the EU average.

The labor market continued to perform strongly in 2023, with employment expanding by 3.1% and the unemployment rate falling to 12.2%. Despite these positive developments, Spain's employment rate remains below the EU average and the 2030 national target, with persistent regional disparities. The share of temporary employees in the private sector stabilized at 14.0% in 2023, following a significant decline after the 2021 labor market reform, while the public sector's temporary employment rate remained high at 30.6%.

Inflationary pressures eased in 2023, with headline Harmonised Index of Consumer Prices (HICP) inflation decreasing to 3.4%, driven by a drop in energy prices. Nominal wage growth increased to 4.5%, slightly above the reference set in the multi-year agreement signed by social partners, including an 8% raise in the minimum wage. This wage growth helped recover some of the purchasing power lost during the previous two years, which had seen a 7% decline in real wages.

Spain's external sector showed improvement, with higher net exports of services and a lower energy bill contributing to an increased trade surplus. The net international investment position (NIIP) continued its long-standing trend of improvement, supported by strong nominal GDP growth and a higher current account surplus, which rose to 2.5% of GDP, returning to pre-pandemic levels.

On the fiscal front, the general government deficit decreased to 3.6% in 2023, driven by strong revenues from personal and corporate income taxes, reflecting positive labor market developments and increased firm profits. Government measures to mitigate the impact of energy price shocks, such as VAT cuts for basic food products and direct support to transport sectors, remained substantial but declined from 2022 levels. The debt-to-GDP ratio fell to 107.7%, mainly supported by strong nominal GDP growth.

Looking ahead, real GDP growth is forecast to moderate to 2.1% in 2024, with domestic demand expected to be the key driver, supported by consumer spending and a gradual rebound in investment. Despite the positive outlook, challenges remain, including the need to address structural issues in the labor market, such as high unemployment rates and regional disparities, as well as the necessity to sustain fiscal consolidation efforts to ensure long-term economic stability.