Bank of Spain improves economic forecasts with warning
The Bank of Spain has raised its forecast for Spanish economic growth in 2024 by four tenths. placing it at 2.3%. However, he also adjusted upward the average inflation rate for the current year, raising it to 3%, although he expects “gradual moderation“in the coming months.
After the end of the pandemic, Tourism is growing, and the Spanish economy is growing along with it.. It is expected to improve 1.9% more than expected three months ago, according to forecasts published on Tuesday by the Bank of Spain.
Some of the factors that have contributed to this rise in Spain’s economy include tourism, employment and activity indicators shared by companies. However, the main culprit behind this growth is, without a doubt, tourism sector. The growth achieved by INE in the last two quarters of 2023 also played an important role, although to a much lesser extent.
Increased consumption
Likewise, the bank believes that consumption, which has been low since the pandemic, some rebound when financial conditions and confidence improve. In addition, they also believe that migration activity will continue to be relatively high.
It should be noted that the Spanish economy showed slight growth of 0.7% quarterly, which surprised economists as it did not violate any forecast. At the same time, tourism developed. growth of 19% quarterly after Easter, and with better data as more tourists arrived in the off-season, in different areas, and a higher average gesture. In addition, according to the data, they spent the night in establishments of a higher category.
However, the organization warns that this situation may be temporary and that This may be an unstable episode, Although it is true that the market has not yet fully recovered as markets such as Japan have not yet recovered.
On the other hand, the institution’s assessments confirm that there will continue to be significant GDP growth (about 0.5%) although they caution that there is still a lot of uncertainty in this regard. As for the rest of the forecasts that were already published in March, there is nothing new or unusual here. Thus, in 2025 growth of 1.9% will be achieved, and in 2026 – by 1.7%. However, these forecasts, they point out, were made without taking into account the new European tax rules, which are mandatory. a multi-year adjustment plan that reduces debt by more than ten years.
This commitment to Brussels will require, from 2025, government deficit correlation that will affect economic growth, the agency reports. According to Pablo Hernandez de Cos, former governor of the Bank of Spain, it is not just about taking advantage of the economic cycle, but also about the need for a fiscal plan that will help close the fiscal hole.
As for overall inflation, a slight increase is expected, amounting to about 3% (instead of 2.7%). Reversal of some measures approved by the government for combating energy and food price shocks, rising oil prices and ongoing service sector inflationThese are some of the reasons that have led to the overall rise in prices.
Besides, salary increase with low productivity These are other reasons that contributed to the increase in this inflation. The goal is to bring this rate down over the next few years, reaching around 1.8% in 2026.
Unemployment rate
Focusing on the unemployment rate, the Bank of Spain warns that an 11% decline will not occur until 2026 at the earliest. In addition, he believes that there will be a slowdown in the rate of job creation that has been observed so far, while maintaining the same percentage of people unemployed. While this is expected to increase productivity, they note that in 2024 “will continue to demonstrate deliberate weakness.”
According to the organization’s report, Since the pandemic, most jobs have been created in large companies rather than small ones. In fact, the share of workers in these companies (more than 500 people) increased from 33% in 2019 to 36.1% in April, while the share of micro-businesses (less than nine employees) fell slightly, from 21.6% to 18.7. % from the sum. The sectors that have seen the greatest growth are tourism, transport and professional, scientific and technical activities.
Referring to food inflation, The situation is expected to decline as it has in recent quarters. The ECB estimates it will rise from 11.1% in 2023 to 4.5% in 2024 and to 2.5% in 2025 and 2026. Although they warn that there may be ups and downs, for example with the reduction of VAT on basic food products.
Recovery expected, albeit with uncertainty
Overall, a moderate economic recovery is expected, but economists warn great uncertainty, as well as restrictive monetary policy. They also claim that it is normal that, along with economic growth at the European level, the level of exports in the country increases. Except state debt It is also expected to decrease: to 105.8% of GDP in 2025, to 106.2% in 2025 and to 107.2% in 2026.
However, at the same time it is expected that increase in imports, moderate tourism and increased tourism of Spanish citizens abroad. Thus, the contribution of the foreign sector to the country’s domestic growth will be practically zero.
On the contrary, consumption and investment will play a leading role and become the main sources of support in the coming quarters, which, coupled with high savings should boost private consumption, which has so far remained weak due to inflation and an aging population. It is currently 2-3 points below pre-pandemic levels on a per capita basis, although the performance of European funds should boost investment, which will also help secure better financial terms.
Some of the risks identified by the organization include: fiscal adjustment and current geopolitics, exacerbated by conflicts in Ukraine and the Gaza Strip, as well as tensions between China and the United States. Likewise, the difficulties currently facing the Chinese real estate sector may also pose a challenge.
Government celebrates results
The Ministry of Economy stressed that the Bank of Spain joins “national and international organizations that in recent weeks have improved their forecasts for the expected development of the Spanish economy.” ““More good news” indicated from the department headed by Minister Carlos Corpuz, emphasizing that the data exceeds government expectations, positioning Spain among advanced economies, and that inflation follows “steady decline” which would put it at about 2% next year.
This Government is going to continue to implement the program of progress during this Legislative Assembly and, of course, whatever the citizens want to apply these progressive politics which clearly improve the lives of Spaniards,” said the minister’s press secretary, Pilar Alegria, commenting on the data at a press conference after the meeting of the Council of Ministers.
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