The Organization for Economic Cooperation and Development (OECD) estimates that Spain will grow 2.4% of GDP this year and 1.4% in 2024. The organization thus lowers its forecast for the next year by five tenths, although points to a rebound in the economy in 2025, when it foresees a recovery of 2%. In her new projections, published this Wednesday, Clare Lombardelli, the chief economist, points out that Spain has to redouble its commitment to fiscal consolidation to continue reducing the deficit and debt “more forcefully.”
In order to sustain the growth of the Spanish economy, the OECD points to internal demand as its main driver. Spaniards’ consumption, although it will be lower next year, and investment will be decisive for this estimated improvement of 1.4% of GDP. Despite this, the organization aims to maintain high interest rates and persistent inflation even during 2024, at 3.7%. By 2025, it estimates a moderation in prices to 2.3%.
“The tightening of monetary policy is influencing activity,” the agency points out, causing negative effects on loans to companies and consumers. “Households are very exposed to rising interest rates,” since 70% of mortgages are based on variable rates, he adds.
Despite this reduction in the outlook, the OECD highlights that Spain will continue to grow above the countries around us and above the average of the euro zone, whose economy will grow by 0.6% this year, 0.9% the next and 1.5% in 2025.
Regarding employment, the organization that brings together advanced economies points to an unemployment rate in Spain of 12% in 2024, nine tenths less than the expectation for this year. In 2025, it is estimated that it will be reduced to 11.8%. The President of the Government, Pedro Sánchez, promised yesterday before multinationals to achieve full effective employment during this legislature.
The OECD also recalls that Spain’s economy remains subject to great uncertainty as a result of geopolitical conflicts, which will continue to drive prices. Regarding energy, the organization does not rule out the extension of some tax cuts currently in force during the first months of 2024. The Government has already confirmed that it will extend the VAT reduction on food until June and aid for public transport.
Given this scenario, the OECD calls on Spain for “stronger and more sustained fiscal consolidation” to keep the debt on a downward path. The ‘think tank’ improves the deficit forecasts, which will close this year at 3.6% of GDP to be reduced in 2024 to 3.2% and 3.1% a year later. A month ago it pointed to a negative imbalance of 3.8% in 2023 and 3.5% in 2024.
Regarding public debt, the OECD expects it to be above 109% of GDP this year and around 110% for the next two years, in line with previous projections.
To increase productivity and innovation, it recommends focusing efforts on promoting R&D projects through partnerships between companies and research institutes, and reducing regulatory differences between regions. Likewise, to meet the objectives in the fight against climate change, it considers that a more environmentally friendly tax regime will be necessary, with a broader tax base and fewer exemptions.
