The General Council of Economists of Spain (CGE) announced this Monday that it maintains its economic growth projection for this year at 2.9%, which coincides with its estimate from August.
The growth of 0.8% in the first two quarters of the year, as well as the Excellent performance of the tourism sector in the first seven months and the favourable development of both general CPI and core inflationsuggest that the economy could close the year with a growth of 2.9%. However, geopolitical conflicts persist in Ukraine and the Middle East, which could have an impact not only on our economy, but also on other European countries, our main trading partners, which are experiencing very low growth rates. This scenario could have an adverse effect on our exports, which, despite a positive development, could be affected in the fourth quarter.
On the other hand, Latest PMI leading indicators reflect growing optimismIn August, the composite PMI index of total euro area activity reached 51.2 points, up one point from 50.2 in July. The services sector also improved, rising 1.4 points to 53.3. Although the manufacturing production index remains below the 50 threshold, it recorded a slight increase of two tenths compared to July, while the manufacturing index remained stable at 45.8 points. In Spain, the manufacturing index fell to 50.5 in August, five tenths less than the 51.0 recorded in July, indicating a weakening of this sector.
Tourism on the rise
Inside tourism sector, activity continues to mark historic milestones. According to INE data corresponding to the month of July, spending by foreign tourists in the first seven months of the year totaled 71,108.37 million euros, which represents an increase of 18.59% compared to the same period of the previous year, which was 59,959.39 million euros. In addition, the number of international tourists arriving in Spain until July reached a new record, approaching 53.4 million.
The hotel tourism situation data for July 2024, also from the INE, reveal that overnight stays exceeded 44 million, with more than 29 million corresponding to non-resident visitorss, which represents an increase of two percentage points compared to last year. A slight increase was recorded in the average length of stay and the occupancy rate, while the average price per room increased by 8%, reaching 140.52 euros compared to the same month of the previous year.
Number of tourists in August expected to exceed that of Julymaintaining the usual trend, and that the summer season extends until October. This will lead to solid economic growth in the last half of the year, although more moderate than in the first quarter. According to the INE, the advanced CPI for August stood at 2.2% year-on-year, six tenths less than in July, influenced by the drop in fuel prices. Core inflation stood at 2.7%, one tenth less than the previous month. Thanks to the favourable evolution of the two indices, the annual average forecast of the CPI has been revised downwards to 2.8%.
Reduce the CPI
Slowing inflation in Spain and the eurozone could lead the European Central Bank to cut interest rates. A quarter-point cut is expected to be agreed at the September meeting, with the possibility of another similar cut before the end of the year, which would result in a 0.5-point drop in the official interest rate. This expectation is already reflected in the 12-month Euribor, which averaged 3.17% in August, down from 3.52% in July. The fall in the Euribor has several effects: reactivation of the real estate market, a reduction in mortgage repayments, which increases disposable income for consumption or savings, and a lower cost of financing for businesses, which could stimulate investment.
More jobs this year
The labor market continues to show its strength, with the creation of 324,976 jobs up to August 15, which brings the total number of Social Security affiliates to 21,167,912. Despite this growth, the temporary employment rate of new contracts rose to 14.83% in July, and 56.8% of permanent contracts in the first half of the year were discontinuous permanent contracts. The number of unemployed fell by 157,219 people through July to 2,550,237. This strength in employment led to a downward revision of the unemployment rate forecast by two-tenths to 11%, although it remains the highest in the eurozone.
In the area of public debt, according to the Bank of Spain, Public administration debt reached 1,624 billion euros in June, or 108.2% of GDP, three points lower than in June 2023. However, in absolute terms, debt increased by €56 billion last year and by €51 billion so far in 2024. The debt-to-GDP ratio is expected to be reduced to 106% by 2024. the end of the year, driven by GDP growth and a moderation in the increase in debt in the last quarter.
