BBVA Research raises Spain’s GDP growth forecast
However, this trend may change in the coming quarters and negatively affect the contribution of external demand to GDP. After double-digit growth in 2024 Non-resident consumption in real terms may stagnate in 2025. According to the observatory, the capacity used during high season months is limited; especially considering that the negative externalities of sector development entail significant costs for a large part of the population. “Elements such as overcrowding, pollution or rising costs of living (mainly housing) are causing a change in sentiment that will have implications for public policy,” he notes. “This will prevent more tourist spots from entering the market. If demand growth continues, it is likely that this will lead to higher prices, higher taxes, or regulations that limit supply.”
Increased productivity per hour worked
The BBVA study confirms the increase in manufacturing efficiency in Spain compared to the eurozone over the past four years. In particular, Productivity per hour in Spain increased by 3.2% in cumulative terms, and in EMU by 0.9%.. The main contribution to this evolution comes from improvements in production efficiency in each sector, rather than from the restructuring of employment towards more efficient activities or changes in relative working hours. In this sense, financial activity and manufacturing explain much of the increase in labor productivity in Spain since 2020, as they are the only sectors that have improved their productive efficiency and increased their weight in employment. Productivity gains also occurred in the services sector and, more specifically, in trade, transport, hospitality and professional activities. However, on average they are still less effective.
Economic growth accelerates in the eurozone
BBVA research suggests that growth in the eurozone will accelerate in the coming months thanks to greater confidence in energy prices and a recovery in household purchasing power. On the energy side, electricity prices are falling thanks to relatively high gas supply levels. Likewise, the price of oil does not currently put pressure on the outlook for inflation, which could reach 2.5% in Europe in 2024 and 2% in 2025. the expectation of a reduction in financial burden in the future should encourage an increase in family spending.
In parallel, exports, especially in Germany, are showing signs of recovery. Signs of improvement in external demand are beginning to emerge as order expectations improve and inventory levels decline.
“If the scenario of lower inflation is confirmed and activity moderately accelerates in September and December, it is expected that there will be a rate cut similar to June.”
Lower interest rates in the eurozone
According to BBVA Research, Eurozone monetary policy rates could fall by 75 basis points in 2024 overall and by a further 100 basis points next year.. “If the scenario of lower inflation and a moderate acceleration in activity predicted by BBVA Research for the euro area is confirmed, rate cuts similar to June are expected to occur in September and December,” economists note. “With ample liquidity and competition prevailing in the Spanish banking sector, this could mean improved financing conditions for companies and families, supporting future demand growth.”
In 2024, fiscal policy may be somewhat more expansionary than expected.
The government deficit ended 2023 at 3.7% of GDP, three-tenths less than expected and one point less than the 2022 figure. Government spending behaved as expected. The recovery in tax revenues (especially income taxes) and social contributions exceeded expectations, offsetting the deterioration in output taxes caused by the tax cuts.
This evolution increases the likelihood that the government account imbalance is less than 3% of GDP without the need for additional fiscal policy measures.According to BBVA research.
In parallel, investments in other buildings and structures are beginning to show an acceleration in the uptake of Recovery, Transformation and Resilience Plan (TRRP) funds. This component of domestic demand is expected to increase by an average of 6.9% through 2024, following a 4.4% increase in 2023. “It is very likely that during 2024, data will finally show a consolidation of the impact of funds on economic activity,” BBVA economists said.
“It is very likely that during 2024 data will finally show a consolidation of the influence of European funds on economic activity.”
Moderate growth in the coming quarters
BBVA Research warns that GDP growth may slow in coming quarters due to negative contribution from external demand, given restrictions on the growth of the tourism sector and increasing imports. “A change in the structure of sales abroad, with a smaller contribution from services exports, will lead to a more intensive growth pattern in the use of resources from other countries,” the report emphasizes.
Similarly, research service BBVA notes that family income has increased, but not in proportion to spending. One explanation for the increase in savings could be the exhaustion of the boost that the end of pandemic restrictions brought to the services sector.
Research service BBVA finds that family income has increased, but not in proportion to expenses.
Investment stagnation
Finally, stagnant investment represents a bottleneck to improving productivity and competitiveness.. Transportation equipment purchases and housing investment remain nearly 20% and 10%, respectively, below 2019 levels. Likewise, the sensitivity of investment to the growth cycle and, in particular, to PRTR-linked funds was lower than expected. Investment is still 1% below pre-pandemic levels, while GDP is already almost 4% higher. “Factors that may reduce the multiplier effect of funds may include their concentration on the purchase of imported goods, high levels of unused capacity in some sectors, or lack of planning to take into account the need to spend funds as quickly as possible. “
Another factor that could hamper economic activity is the fiscal adjustment required to comply with fiscal rules, which will affect domestic demand. This adjustment will occur, at best, by increasing indirect taxes, and at worst, by sacrificing productive spending, basic services, or ineffective tax increases. “The lack of consensus on economic policy is a source of uncertainty in the future, which discourages private investment.“, economists note. “It would be desirable to have end-to-end agreements that would provide certainty on fiscal adjustment, the provision of essential public services, protecting the most vulnerable, reducing unemployment, immigration, the dual energy and digital transition or increasing productivity.”