A pessimistic observer would describe 2024 as a year in which the economy will start limping, following the slowdown already manifested in the last two quarters of the previous financial year, with employment also slowing its pace, all penalized by interest rates and by the forced return to fiscal discipline. And pessimism has a good reputation. Martin Wolf himself, editor-in-chief of Economics of the Financial Times and author of The crisis of democratic capitalism, proclaims himself a pessimist and justifies it with three reasons: his biggest mistakes come from an excess of optimism, the pessimism of game causes most of the surprises to be 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 who see 2024 as a year that will go from low to high, which will certainly start with sluggish activity, but which will improve thanks to consumption that is still maintained, resilient employment and boost from European funds. And in addition, with inflation on the way to control. If the downward trend 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 close to 2.4%, while 2024 will start weak, but will move in a growth of between 1.6% calculated by the Bank of Spain and 2% by the Spanish Government. An increase in GDP well above the 0.8% that is granted in 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 exhaustion of the labor market and the cheapening of imports”, says Raymond Torres, from Funcas. On the one hand, membership grows less and this brings less purchasing power to households, which has an impact on consumption. On the other hand, the favorable tailwind of cheaper imports compared to what we were selling abroad is lost.
“We will have a different growth. In 2023 it was from more to less and this year it will be from less to more… with lower growth in the first months, and instead, from the summer, monetary policy will change tone and bring more growth.” argues José Ignacio Conde-Ruiz, from Fedea.
Meanwhile, given the dilemma of withdrawing the anti-inflation shield or reducing the deficit, the Spanish Government has chosen an intermediate path, of partial and very gradual disarticulation of the measures adopted, thus avoiding an inflationary upturn, but it will have to demonstrate that it is compatible with squaring the budget in one year, 2024, when the European tax rules are already back in force. The Central Government’s commitment is to reduce the deficit to 3% this year, a goal that the Bank of Spain does not believe it will achieve without taking additional measures. In his December projections he pointed out that the deficit will only be reduced to 3.4%; therefore, outside the margin given by Brussels.
Economist José Ignacio Conde-Ruiz also does not see this reduction of the deficit to 3% as feasible. “With the known measures it is impossible”. And it is precisely the double challenge of 2024, on the one hand, fiscal consolidation, and on the other, stimulating investment. And this is where the economist is most critical of the Spanish Government. “Making announcements without specifics creates uncertainty,” he says, referring to changes in the cost of dismissal and tax issues. “An uncertainty that slows down investment”, he insists.
It also plays against the sluggishness of the European economy, with a Germany on the verge of recession which, although it may recover slightly this year, will continue with meager growth rates with little stimulus for Spanish exports. “We’re talking about an engine that doesn’t work well, which is that of exports,” says Raymond Torres.
Where can the positive surprise come from? Per Torres, of the ECB, if he incorporates disinflation into the rate policy and adjusts them downward, probably from June. An ECB that was waiting to verify that there is no inflationary process. If it defaults, it will lower rates, which will bring more activity and more investment.
The Spanish economy
