The Spanish economy will continue to grow, but at an increasingly slower pace. It is the confirmation of the gradual deceleration that was predicted and which is being fulfilled, but more gently than expected. The economic projections of the Bank of Spain published yesterday point to growth this year of 2.4%, which will be significantly reduced to 1.6% in 2024. In this case, two tenths below the forecast of September, and four of 2% maintained by the Central Government.
It is domestic consumption and European funds that will allow this growth of 1.6%. Household consumption which, despite losing strength, continues to drive GDP and Next Generation which will have the main impact on investment in 2024 and 2025.
As for the current year, the fourth quarter would be encouraged by around 0.3%, the same figure as the third. The PMI indices, which indicate the level of purchases in the manufacturing sector, the Bank of Spain Business Activity Survey and the evolution of Social Security membership, with a growth rate of in October and November similar to the previous months.
It is a growth below that of the first two quarters of the year, when 0.6% and 0.4% were recorded. In any case, it represents an economic activity well above that of the euro zone, which marked a drop of one tenth in the third quarter of the year.
In the coming quarters, growth will be largely based on household consumption. It will not be as strong growth as last year, but it will continue to increase, supported by rising real incomes, moderate inflation rates and job creation.
In addition, the Next Generation funds will also help, the deployment of which will gain traction in 2024 and 2025, which will lead to a strengthening of investment as a driver of growth. On the other hand, the contribution of external demand to growth will recover, after the noticeable negative impact that the spring and summer of 2023 had. However, net exports will help, but not with the same intensity with which they helped in 2022.
On the other hand, the Bank of Spain warns that growth takes place because of the increase in the population, not because of significant improvements in productivity. “You can’t fall into complacency”, says Ángel Gavilán, director general of Economics and Statistics, who emphasizes that low productivity is one of the main problems of the Spanish economy.
A criticism based on the comparison of GDP per capita and productivity per hour recorded in Spain with that of the euro zone.
Regarding inflation, the Bank of Spain revises down previous forecasts. Slightly for this year, a tenth that leaves it at 3.4%, and much more forcefully, a point, in 2024, when it would be at 3.3%. The magical figure of 2%, the objective of the ECB, would only be achieved in 2025.
Inflation is expected to pick up slightly at the beginning of 2024, and resume a downward path in the second half of the year. A dynamic largely determined by the evolution of energy prices and also by the expiration at the end of 2023 of a large part of the anti-inflation shield measures.
Food prices will continue their downward trend, although they are still at very high rates. The main reason for the decline is the decrease in prices of food raw materials and inputs such as energy and fertilisers, in addition to the announced extension of the reduction in VAT on basic foods until June 2024.
