BBVA places Castilla y León as the region with the highest growth in GDP per capita between 2019 and 2025

The BBVA Research Service maintains a dynamic growth forecast for the GDP of Castilla y León, with an increase of 2.0% in 2024, in line with the national average, after 2.6% in 2023. The strength of exports of goods and industrial production, driven by the automotive sector, could have allowed this community to recover pre-crisis levels of activity last year.

BBVA Research predicts that the Castilian-Leonese economy will moderate its progress in 2025 – although it may achieve a rebound thanks to investment – ​​which would place GDP growth at 1.8%. If these forecasts are met, the unemployment rate will be reduced to 8.3% and 27,000 new jobs can be created by 2025. In addition, the region could be the community with the greatest increase in GDP per capita in the period 2019-2025. as a consequence of increase in productivity.

The ‘Castilla y León 2024 Situation’ report from BBVA Research, presented this Tuesday by Miguel Cardoso, chief economist of BBVA Research for Spain, and Guadalupe Hernández, Northwest territorial director of BBVA, points out that The GDP of the Castilian-Leonese community could have increased by 2.6% in 2023, which is 0.1 percentage points more than in Spain as a whole. Driven by the automotive sector, exports of goods increased by 15.4% in 2023 (-1.0% in Spain).

In nominal terms, lSales abroad exceeded those of 2019 by 17% (32% in Spain). In 2024, GDP could increase by 2%, one tenth below what it will do nationally. BBVA Research points out that the European economy seems to have hit rock bottom and could show progressive improvement during the year. The price of raw materials remains low, despite the geopolitical tension, which will keep the cost of transportation without substantial increases and helps contain production costs. The region’s economy is crucially dependent on continued sales of goods to the eurozone and higher margins in the industrial sector can lead to increases in investment and wages. Inflation falls, allowing the beginning of the interest rate reduction process. The funds associated with the PRTR will sustain public investment.

Accelerates at the start of 2024

Despite the stagnation of the main European countries, the Castilian and Leonese economy has remained solid and job creation is accelerating again. While in Spain it is the most touristy regions that would be leading the increase in membership so far in the first quarter of 2024, in Castilla y León the progress is only slightly below the average. Salamanca, Valladolid, Zamora and the rest of the non-capital urban areas show a dynamism higher than the Spanish average in affiliation to social security. On the contrary, in Burgos, León, Palencia and non-urban areas the increases are smaller. Manufacturing and commerce take over from the public sector as the main drivers of affiliation in the first quarter of 2024. Along the same lines, construction and agriculture also rebound.

With respect to consumption, spending with BBVA POS cards maintained growth of around 15% year-on-year in the first quarter of 2024, supported by sectors such as transportation, tourism and restaurants, in line with a general trend in households to consume more services than goods. Furthermore, spending in Castilla y León by visitors from the rest of Spain grew by 11%, while spending with foreign cards at BBVA POS terminals increased by 102% year-on-year (20.5% in Spain).

On the other hand, the containment of energy costs is allowing inflation to be maintained at around 3%. In this community the weight of products with inflation less than 2% reaches 43% of the consumption basket, 6 points more than in Spain. However, those that show very high inflation also weigh more. In any case, a context of moderation in demand growth together with the absence of bottlenecks that limit supply allows BBVA Research to expect a containment of inflation, which will lead to the beginning of the interest rate reduction process. Furthermore, despite the geopolitical tension, the price of raw materials remains low.

Investment in capital goods in Castilla y León accelerates also, although less than in Spain, and is 25% above pre-crisis levels (38% in Spain). A context of lower interest rates, recovery of European demand, greater public investment through European Next Generation funds, the modernization of the automobile fleet (reserved demand) and fewer bottlenecks will continue to boost industrial activity, and with it, the investment.

In relation to the real estate sector, Castilla y León shows a more positive evolution of sales than the national average. Still, in 2023 operations fell in all segments of housing demand, but at a lower than average rate. Sales of second homes fell the least (5.5% y/y), reaching a weight of 24% with respect to total operations in the region (21.5% in 2019), being a relevant segment for the sector. . Despite lower demand, housing prices in the community are increasing due to lack of supply. However, while a certain sluggishness is observed in housing production, greater dynamism is detected in construction for non-residential use: the amount of visas for this type of work was 67% above pre-crisis levels. (35% in Spain) in 2023.

Progressive deceleration towards 2025

BBVA’s analysis service predicts that Castilla y León’s GDP will moderate its growth, and that growth will stand at 1.8% in 2025 (2.0% in Spain). If these forecasts are met, the unemployment rate will be reduced to 8.3% and 27,000 new jobs can be created until 2025.

Among the factors that can slow down economic activity is the increase observed in export prices, which are advancing at a faster rate than that of most European countries. The above could represent a brake on sales in Castilla y León in the coming quarters.

This, in an environment of labor shortage and increasing labor costs, without significant advances in productivity being perceived. On the other hand, employment in high value-added services is at very low levels compared to other communities. In Castilla y León, More than 15% of service companies consider the lack of labor worrying at the end of 2023 (1% at the end of 2022). All this comes together in a context in which the aging of the population is reducing the availability of workers of working age, together with the decrease that has been occurring in the participation rate of Spaniards between 35 and 54 years old. Immigration may not fully compensate for the sluggishness of the domestic labor market.

Economic policy uncertainty may increase going forward, and the measures that have to be implemented to reduce the public deficit will be important. In this scenario, Castilla y León could be the community that experiences the greatest growth in GDP per capita between 2019 and 2025, with an advance that will exceed that experienced by Spain by more than half a real point per year. The productivity gains, greater in the region than in Spain as a whole, make it possible to compensate for the lower dynamism of the labor market, linked to sectoral specialization, and more unfavorable demographic behavior.