The Bank of Spain has updated its quarterly forecasts, the report published periodically by the regulator to analyze the Spanish economic situation and its comparison with the European and global environment. The institution’s new projections include a considerable improvement in the expected growth of Spanish GDP in the short and medium term, which contrasts with the moderation of activity in the European environment. The Bank of Spain revises by half a point upwards GDP in 2024 up to 2.8%, growth that will triple the expected progression in the eurozone for several reasons: the statistical revisions of the National Institute of Statistics (INE) after the pandemic cause a “ripple effect”, the activity surprised positively in the spring and the exportsespecially tourism, even if more qualified foreign sales show a positive tone.
The 0.8% growth recorded in the spring broke the records maintained by the Bank of Spain and most institutions. The institution expects a certain moderation in the pace of growth in the third quarter, while it is counting on 0.6%, which will not be enough to “slow down” the machinery of activity in the medium term, especially in a context of easing of monetary policy. which could stimulate domestic demand.
The Bank of Spain, however, indicates that there are various symptoms of weakness to be taken into account. Job creation suggests a slowdown in the latter part of the year after the dynamism displayed in the first half of the year; The unemployment rate will be 11.5% of the active population, according to the Bank, unchanged compared to previous forecasts but more optimistic for the years to come. For their part, economic confidence indicators have moderated and show heterogeneous behavior between sectors, added to a weakening of corporate results during the summer.
In any case, the traction of the Spanish economy contrasts with the European environment, which maintains a lukewarm growth and lower than economists’ expectations. The European Central Bank (ECB) speaks of a “soft” recovery expected for the coming years. In particular, the ECB forecasts a GDP growth of 0.8% in 2024, to then accelerate to reach rates of 1.3% and 1.5% in 2025 and 2026. The research service led by Ángel Gavilán forecasts moderate growth at 2.2% (+0.3) in 2024. 2025 and 1.9% (+0.2) in 2026, although both records are revised upwards.
Spain is monitoring the context of its European neighbours and also at the global level. Global economic activity showed robust growth in the second quarter, which is expected to continue in the second half of the year, despite some symptoms of general weakness in the manufacturing sector in advanced economies, measured through industrial production and activity indices.
Pricing of services: risk and global phenomenon
The Bank of Spain maintains an inflation forecast that is practically the same as before the summer: the CPI will be around 3% this year, a rate similar to that expected for 2025. The Bank of Spain has observed a slowdown in energy prices, particularly striking during the year. case of oil, and food that intensified in the summer, while in June it was something that energy occupied a good part of its analysis.
The most worrying thing for the entity is the persistence of core inflation, particularly in services. Non-energy manufactured goods maintained very moderate growth rates (0.6% in August), while Services inflation is anchored around 4%. What is driving this resistance? “Inflation in catering and tourism services showed some volatility throughout the summer season (up to 4.9% in August),” the report highlights.
The so-called “domestic inflation”, which measures the deflator of the added value of the market economy, has shown a process of stagnation above 3% due to a readjustment between the moderation of labor costs and the improvement of corporate surpluses.
The institution expresses doubts about the evolution of consumption and productive investment in the short term
In addition to the resistance of service prices, the Bank of Spain highlights two aspects that are holding back the Spanish economy. Domestic demand is not contributing as it should to GDP growth: private consumption and gross capital formation (productive investment) have moderated their growth in the first half of the year and the doubts surrounding these components of domestic demand set the potential growth of the Spanish economy below 2% per year. Despite everything, the Bank of Spain bases the growth of the Spanish economy over the period 2024-2026 thanks to domestic demand.
New tax rules
The Bank of Spain warns the government of the need to adjust public accounts due to the return of budgetary rules. The institution predicts that Spain will not be able to meet the target demanded by Brussels of reducing the primary deficit below 3% of GDP and demands from the executive a budgetary plan to reduce the imbalance in public accounts by 0.5% of annual GDP, or the equivalent of around 7.5 billion“The design and execution of said plan would constitute a fundamental lever to strengthen the sustainability of Spanish public accounts and the confidence of economic agents in our economy,” the report emphasizes.
Spain must present its roadmap to the European Commission to address the new fiscal rules, explaining how it will achieve its debt and deficit targets in the coming years. The Bank of Spain is observing a slightly restrictive fiscal tone this year, although if the government does not act, the tone will remain neutral. Moncloa’s inaction would keep the deficit above 3% of GDP permanently: 3.3% in 2024, 3.1% in 2025 and 3.2% of GDP in 2026. A similar rebound will occur with the debt in the absence of additional measures: 105.8%, 106.2% and 107.2% of GDP in the next three years.
“This budgetary adjustment [del 0,5% del PIB anual] is not included in the current projections, as there is not yet sufficient precision on the revenue and expenditure measures that would be deployed within the framework of these,” he indicates. “However, the possible implementation of a medium-term structural adjustment programme of the magnitude indicated would probably lead to a lesser degree of dynamism in activity over the entire projection horizon,” he explains.
