A pessimistic observer would describe 2024 as a year in which the economy will start limping, following the deceleration already evident in the last two quarters of the previous year, with employment also slowing down, all penalized by interest rates and the forced return to fiscal discipline. And pessimism has a good reputation. Martin Wolf himself, editor-in-chief of Economics at the Financial Times and author of The Crisis of Democratic Capitalism, proclaims himself a pessimist and justifies it with three reasons: his biggest errors come from an excess of optimism, the initial pessimism causes the majority of the surprises are pleasant and that his existence is due to the decisions of two pessimists, his father and his maternal grandfather.
However, there are also optimistic economists, those who see 2024 as a year that will go from less to more, which will certainly begin with sluggish activity, but which will improve thanks to consumption that is still maintained, resilient employment and the boost of European funds. And furthermore, with inflation that is on the way to being controlled. If the downward line continues, it is the great white hope for the ECB to lower rates.
It would be the antithetical trajectory of 2023, which started strong and ended weak, although with an increase in GDP last year that is expected to be around 2.4%, while 2024 will start weak, but will move towards a growth of between the 1.6% calculated by the Bank of Spain and 2% by the Government. An increase in GDP well above the 0.8% granted to the euro zone.
In any case, everyone agrees, pessimists and optimists, that GDP is slowing down. “It will be worse than last year due to the double effect of the depletion of the labor market and the cheaper imports,” says Raymond Torres, of Funcas. On the one hand, membership grows less and this provides less purchasing power to households, which has its impact on consumption. On the other hand, the favorable tailwind of cheaper imports compared to what we sold abroad is lost.
Meanwhile, faced with the dilemma of withdrawing the anti-inflation shield or reducing the deficit, the Government has chosen a middle path, of partial and very gradual dismantling of the measures adopted, thereby avoiding an inflationary rebound, but it will have to demonstrate that it is compatible with balance the budget in one year, 2024, in which European fiscal rules are already in force again. The Government’s commitment is to reduce the deficit to 3% this year, something that the Bank of Spain does not believe it will achieve without taking additional measures. In its December projections it pointed out that the deficit will only be reduced to 3.4%; therefore, outside the margin given by Brussels.
It also plays against the sluggishness of the European economy, with Germany bordering on recession that, although it may recover slightly this year, will be with meager growth rates with little stimulus for Spanish exports. “We are talking about an engine that does not work well, which is exports,” says Raymond Torres.
Where can the positive surprise come from? For Torres, the ECB does incorporate disinflation into its rate policy and adjusts them downwards, probably starting in June. An ECB that waits to verify that there is no inflationary process. If he is convinced, he will lower rates, which will bring more activity and more investment.
