Potential Growth of the Spanish Economy

Abstract

This paper presents an estimate of the Spanish economy's potential growth. This estimate is based on a production function methodology that includes certain refi nements on previous versions and generates less procyclical potential output growth estimates than those traditionally considered in the literature. As a result, the (positive) output gap estimated in expansions is higher and that estimated in recessions is lower. According to these results, given the available population projections and under the assumption that total factor productivity (TFP) and structural unemployment will behave in line with historical patterns, the Spanish economy's potential growth is expected to recover gradually over the coming years but, in line with projections by international organisations, to lower rates than those in the expansion period. However, per capita growth rates fully recover to the pre-crisis levels, which highlights the importance of population projections in shaping the Spanish potential growth.

The 2022 European Semester and the Recovery and Resilience Facility

“…19 For a discussion of the importance for the Spanish economy of taking full advantage of the implementation of the NRP, and the challenge that this poses, see, for example, Banco de España (2022) and Cuadrado et al (2022).…”