The Spanish economy is holding up and continues to fuel at levels much higher than those of its European neighbors, but the time has come for a slowdown, to continue growing but at more moderate levels both during the second part of the year and in 2024. This is the warning that has formulated by the Bank of Spain in its projections published this afternoon, which foresee a growth of three tenths in the third quarter and in the fourth “a relatively weak pulse of activity”, for which they do not put figures. This slowdown in activity will continue in the coming quarters,” says Ángel Gavilán, general director of Economy and Statistics of the Bank of Spain.
Slowdown yes, but despite this, the Bank of Spain maintains its growth forecast of 2.3% this year, being compensated by the correction that the INE published in July on previous quarters and its consequent carry-over effect. (On the other hand, these projections do not incorporate the review that the INE carried out yesterday of the growth of 2021 and 2022)
For the following years, the growth forecast for 2024 is lowered by 4 tenths, to 1.8%; and one tenth that of 2025, which remains at 2%.
The Bank of Spain points out the signs of weakening that the Spanish economy has shown during the summer. It grew by 0.4% in the second quarter, already somewhat below expectations, and as of June the signs of fragility have multiplied, especially the PMI indicators, the purchasing managers indices, which continue to decline and also the latest Survey by the Bank of Spain on Business Activity (EBAE) that shows how the turnover of companies is slowing down. Social Security affiliation also points in the same direction, lower than in previous months.
In the coming quarters, activity will continue to have “contained dynamism”, weighed down by interest rates, which will remain high longer than expected, and by the weakness of the external context and its corresponding impact on Spanish export capacity. Foreign tourism, which remains strong, will progressively tend to reduce its contribution to growth since tourism exports have already recovered pre-pandemic levels.
In the opposite direction, supporting growth will be the progressive decrease in inflation, the resilience of the labor market and the growing impact on the economy of European recovery funds.
In any case, Spanish growth, although it is moderating, stands out for its relative strength compared to the very weak growth in the euro zone. A difference that is explained by the different sectoral composition of the economy. Hospitality and tourism remain in shape and are sectors with greater weight in Spain than in its European neighbors, while manufacturing, which is slowing down, has a comparatively smaller impact in our country.
Regarding inflation, everything will depend on the evolution of the oil price, but what is expected is that it will increase in the coming months and remain high until the middle of next year, peaking at 5% and then beginning to decline.
Specifically, the Bank of Spain foresees an upward revision of four tenths this year, up to 3.6% of the harmonized inflation (HICP), motivated by this rebound in oil prices during the summer. The energy component is what will end up governing the path of inflation this year, while the forecast is that food prices will continue to moderate, although here we must point out some products, especially olive oil, with higher prices because of the drought.
It is also energy and the foreseeable withdrawal of the VAT reduction on food and the transport subsidy at the end of 2023, which suggests an increase in inflation in 2024, reaching 4.3%.
A factor that the Bank of Spain highlights is the asymmetry in the transfer of the increase in costs to prices, with more frequency and larger size of the adjustment when it is an increase than in the case of falls. For example, when energy prices fall, companies do not adjust prices as quickly as when increases occur.
