2023-09-19 17:32:54
The Spanish economy faces a transition between what has been a better than expected 2023 for all activity and a 2024 in which the Bank of Spain anticipates dark clouds. Some had even already been digested by citizens, such as the price increase. The supervisor’s economic projections maintain their growth forecasts for this year at 2.3%, one of the highest in the entire euro zone; but at the same time it strongly reduces the increase in GDP (Gross Domestic Product) for 2024, when the economy would grow by 1.8%, that is, four tenths less than initially calculated.
This degradation of the estimates is fundamentally explained by the evolution of the economy in recent weeks once it concluded in summer. The country’s activity has suffered more than expected in the third quarter, which will close with a quarter-on-quarter increase of 0.3%, “slightly lower,” according to the report presented this Tuesday, than the 0.4% in the second quarter.
Spain has not been able to remain immune to the slowdown in global activity, especially due to the recession experienced by Germany and also by the Chinese giant. Also due to the latest increases in energy prices, as reflected in fuel prices, which have risen more than 25% since May; and the impact that is being felt on families and companies by the continuous increases in interest rates, already at 4.5% after the latest review by the European Central Bank (ECB). Despite all this, Social Security affiliation, company turnover and confidence indicators continue to grow strongly, the pillars that now support the economy.
Bank of Spain projections
All of these variables will be reflected more strongly in the evolution of activity during 2024. An exercise in which several factors will come together that may negatively affect GDP. Namely: the end of the aid measures approved by the Government in the last two years to face the crisis, such as transport subsidies or tax reductions on electricity and food; the prolongation of rate increases, which will be felt to a greater extent in the coming months; the slowdown in Spanish exports, one of the engines of recovery, given the sluggishness of European and international trading partners; tourism, which may have peaked without the possibility of its contribution to GDP growing at a faster rate than this year; and energy prices, which once again show problems when it was thought that the worst was over.
Fuels, gas, electricity…
Among the risks that the Bank of Spain warns about in its latest report, one that the population expected to see fall in the coming months has been incorporated almost unexpectedly: a rebound in inflation. The CPI increases will not be like those seen in the middle of last year, with rates higher than 10%. But although inflation will close this year at around 3.6% – in any case, four tenths above what was estimated until now – throughout 2024 it will reach 4.3%. This is seven tenths more of a rise in inflation than was initially estimated by the supervisor himself. Then, according to calculations, the rate would moderate to 1.8% already in 2025, below the ECB’s average target for the euro zone, anchored at 2%.
This price increase would last at least until the middle of next year, although it would influence the general inflation rate for the entire year. The supervisor maintains that with the end of this summer’s increase in energy prices, the rate of year-on-year fall in the cost of energy has slowed down and is expected to increase in the coming months.
Estimates on the evolution of oil have changed to raise what they predict will be its average cost to around $85 per barrel. In the case of natural gas, which affects electricity generation, it can reach up to 50 euros/Mwh compared to the little more than 35 euros/Mwh at which it currently stands.
The rise in inflation will be less conditioned by the evolution of food during 2024. The Bank of Spain foresees an average food inflation of 4%, compared to the average 11.5% this year. What it does anticipate is that there may be new ‘shocks’ in the prices of certain foods, basically those that depend on rains and meteorological changes, which are the ones that are affecting the most, as in the current case of olive oil.
Unemployment, debt and deficit improve
For the rest of the macroeconomic forecasts, the Bank of Spain anticipates a gradual improvement in the labor market. He estimates that this year will close with an unemployment rate of 12%, almost one percentage point less than in 2022. For its part, it would drop to 11.5% in 2024 and 11.3% in 2025. The supervisor highlights “the dynamism of the labor market that will be maintained in the coming years, but will be limited by the evolution of economic activity throughout the country.
Public debt over GDP will also be reduced, to 108.8% this year and below 107% next year. Like the public deficit (3.7% in 2023). Although in both cases, the ratios are calculated without including the data review that the INE carried out this Monday on the GDP statistics.
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