Around 15 billion more at once. This Tuesday, the Bank of Spain raised its economic growth forecasts for our country for 2024, 2025 and 2026. For this year, the improvement in the GDP growth forecast is half a point, from 2.3% to 2.8%. Mainly due to the better prospects for the external sector, especially tourism, “which should continue its momentum”. Also due to exports of non-tourist services and the drop in imports, thanks to the effect of the transition to renewable energy in Spain.
In 2025, the increase in estimated growth is three tenths, up to 2.2%. In 2026, by two tenths to 1.9%. In the next two years, “domestic demand” will take over from the external sector. Family consumption and business investment will wake up and will be the main driver of activity, favored by the fall in interest rates and inflation – estimated at 2.9% in 2024, 2.1% in 2025 and 1.8% in 2026 -, due to the increase in confidence. and the Recovery Plan, according to the analysis of the monetary institution.
The rise in real estate prices could perpetuate the weakness of family spending. Another threat is the risk that the Government will fail to approve the General State Budgets (PGE). Furthermore, the Bank of Spain estimates that in order to comply with the budgetary rules of the European Union (EU), cuts and adjustments would have to be made that would affect all projections. However, before October, the multiannual plan that Spain will have to send to the European Commission will not be known.
Furthermore, this forecasting exercise “will become obsolete”, in terms of GDP levels, this Wednesday, when the INE announces the annual revision of the national accounts from 2020 to 2023, as acknowledged by Ángel Gavilán, Director General of Economy and Statistics of the Institute. Bank of Spain, during the press conference for the presentation of this third quarterly report of 2024. On September 18, the INE will confirm the largest statistical error in its history, which has conditioned the forecasts and the narrative of the exit from the pandemic since 2020.
Gavilán explained that the Bank of Spain could not wait to receive this information due to the deadlines set at European level and because the quarterly details of the INE review will not be known until the end of this year, “too late.”
“We have already seen in other countries significant changes in GDP levels. Our estimates are not invalidated, the starting point could be somewhat different, but the growth rates will hardly change, because we analyze the moment of the economy,” Gavilán detailed.
GDP growth of 0.6% in the third quarter
“The most recent cyclical information suggests that in the third quarter the pace of expansion of activity could moderate compared to that recorded in the first half of the year, i.e. 0.8% in the first quarter and 0.8% in the second quarter, although this figure would remain high,” explains the Bank of Spain.
“In particular, the joint analysis of all the information available at the closing date of this projection exercise – which includes that coming from the Bank of Spain’s Business Activity Survey (EBAE), social security affiliation data and purchasing managers’ indices (PMI) – suggests that quarterly GDP growth could be around 0.6% in the current quarter. “This rate would be compatible with an increase in activity of 2.9% year-on-year, a figure similar to that observed in the second quarter and which would be significantly higher than the potential growth rate estimated for the Spanish economy,” he continues.
Looking ahead to the coming quarters, “GDP growth rates should gradually converge towards those corresponding to the potential growth capacity of the Spanish economy, which, in a context of greater demographic dynamism – due to migratory flows – “would be slightly higher at the end of the projection horizon than that estimated in June (although below 2%)”, adds the Bank of Spain.
Most of the moderation in the growth rate between 2024 and 2026 “would reflect a lower contribution of the foreign sector to GDP growth”. The result, mainly, “of a foreseeable slowdown in the growth rate of exports of tourist services compared to the high rates currently observed”. On the other hand, as factors supporting activity in the coming quarters, “those indicated in previous reports would be maintained”, specifies the team of analysts of the monetary institution.
Among them, it is worth highlighting the gradual easing of financing conditions, the gradual reactivation of the European and global economy, the expected demographic growth, the increase in real incomes due to the fall in inflation and the increased deployment of the European Next Generation EU funds.
Unemployment rate will barely fall below 11%
Regarding the labour market, job creation will continue throughout the projection horizon, although at a slower pace than in recent quarters. In particular, compared to the 1.9% increase recorded in 2023, employment – measured in terms of hours worked – is projected to increase by 1.8% in 2024, 1.7% in 2025 and 1.1% in 2026.
These advances, lower than those projected for activity, will favor an increase in labor productivity. [se mide como la relación del PIB con las horas trabajadas]”whose dynamism has been relatively modest in recent quarters,” says the Bank of Spain.
The unemployment rate will continue to decline gradually in the coming years. The intensity with which the unemployment rate will continue to decline by 2024-2026 will be limited by the expected moderation in the pace of job creation and by the expected significant dynamism of the labour force – due to relatively high immigration flows.
Moreover, this combination of factors would occur in a context where the progressive ageing of the working population could reduce the fluidity of the labour market and where certain indicators would point to a deterioration in its capacity to match businesses and workers.
“In this sense, it is notable the stagnation observed for a year in the stock of long-term unemployed – around 1.1 million people and with an incidence that shows some resistance to falling below 40% -. This could suggest that a good part of the existing stock of unemployed is of a structural nature, which would make it difficult to reduce it through an increase in activity of a cyclical nature. As a result of all this, the unemployment rate of the Spanish economy will still remain close to 11% in 2026”, specify the experts of the institution.
All the Bank of Spain’s projections are based on different assumptions. The first, a drop in oil prices. Also, an easing of monetary austerity. That is, a drop in the cost of mortgages and other loans. On the other hand, it envisages “a gradual recovery of Spanish export markets in the coming quarters.”
On the other hand, the forecast exercise includes “the reform of unemployment compensation” and the partial extension, until December 2024, of the temporary reduction of VAT on certain foods and the permanent reclassification of olive oil in the group of goods taxed at the reduced super VAT rate.
Similarly, the assumptions on the expected evolution of expenditure financed with European funds remain unchanged. Thus, it is considered that the expenditure associated with the Recovery, Transformation and Resilience Plan (PRTR) could be around 1% of GDP in 2024 – compared to 0.7% recorded in 2023 – and that they could reach their maximum impact in 2025 and 2026.
Overall, the tone of fiscal policy would be slightly restrictive in 2024 and roughly neutral in the period 2025-2026. “In any case, it should be noted that, according to the Bank of Spain’s estimates, the application of the new European fiscal budget. This framework would require in our country a fiscal policy of sustained contraction in the coming years. This possible fiscal adjustment is not included in the projections, due to the lack of greater precision regarding the income and expenditure measures that would be deployed to achieve it,” concludes the institution’s team of experts.
