The hope that the Spanish economy will rebound strongly next year is gradually fading. The BBVA Research has cut its growth forecast for 2024 from 2.1% to 1.8% due to the deterioration of global conditions in an environment of “high uncertainty”, as the study states Spain Situation published this Tuesday. The data that analyzes the behavior of activity, especially in the euro zone, show that high interest rates – now at 4.5% – are punishing household consumption, which continues to fall. The entity also points out that the reduction of the deficit during the following year to 3%, as well as some supply problems in certain sectors will be an obstacle to the country’s growth.
BBVA Review In any case, the growth forecast for this year’s Gross Domestic Product (GDP) for Spain remains unchanged. If nothing goes wrong, the country will grow 2.3% in 2023. The strength of the labor market and the resistance of the foreign sector are the pillars on which the economy rests at a time of setback for the majority of community partners. Rafael Doménech, head of Economic Analysis at BBVA Research, has pointed out that the review recently carried out by the National Institute of Statistics of the data from previous quarters compensates for the detriment of global demand in 2023. However, it does not do so in 2024.
Growth prospects for the euro zone are also deteriorating. The GDP of the 20 countries in the single currency is expected to increase by just 0.4% in 2023 and 1.0% in 2024 – from 0.8% and 1.4% previously projected. The decline in factory activity and, to a lesser extent, business activity continues to weigh down the bloc’s economy. The study points out that investment spending is negatively affected by the increase in costs, to which is added the depletion of family savings accumulated during confinement.
Inflation
In September, Europe reached the lowest level of inflation in the last two years (4.3%). In Spain, this level is lower (3.5%), despite a rebound in the summer. Doménech estimates that although levels are moderating, structural elements still persist that keep underlying inflation—which excludes energy products and unprocessed foods—high. The price of fuel, specifically, has resumed its rise since the summer and could become the next Achilles’ heel for the bloc when it comes to seeing prices drop to 2%, fulfilling the mandate of the European Central Bank (ECB). in the medium term.
“It gives the impression that the central banks are somewhat more comfortable with the interest rates they have reached,” said Dómenech, who believes that the ECB is not going to lower the price of money until the end of next year. Currently, rates are at 4.5% – and the deposit facility at 4% –, their highest level since 2001. The economist also highlights that there are no longer reasons for the bloc to face restrictions on gas supply, “something that had weighed heavily on the forecasts of the last year”, although it does not rule out that energy costs in Europe, which are higher than in other developed economies, hamper the competitiveness of the Union.
In a more global picture, the report breaks down that the United States will continue to grow thanks to the good pace that household consumption maintains and the boost provided by measures such as the Inflation Reduction Act of 2022 (IRA) or the CHIPS program (Create Useful Incentives to Produce Semiconductors, which aim to improve the country’s productive structure in the medium term. “In Europe, on the other hand, we are seeing a sharp decline in industrial activity,” Sicilia added. On the other hand, the expert explained, China seems to be gaining strength thanks to a series of measures promoted by the Government to protect some markets, such as real estate.
Employment slowdown
The presentation of the report has coincided with the publication of employment data for September: according to the Ministry of Labor and Social Security, average affiliates increased by more than 18,000 workers, which for Dómenech represents “a slight surprise.” because the figures “reflect a slowdown compared to the first part of the year”, when they were “exceptionally good”. “We were talking about growth rates of at least four tenths per month, corrected for seasonality, and we have practically moved on to growth of one tenth per month,” Doménech detailed.
In addition, the review indicates that during the second quarter of 2023, a drop in productivity per hour worked was observed, as well as the beginning of a slowdown in job creation. “The strong increase in total hours worked during the second quarter of the year was not accompanied by a comparable increase in GDP, which may show diminishing returns in the recovery process,” explained the analyst, who considers that this is one of the factors that will affect growth in 2024.
The study also warns that despite the uncertainty about how economic policy will affect eurozone activity in the coming months, the recovery can continue thanks to the strength of the financial position of households and companies, and the expected normalization of industrial activity. , the support of European funds and the increase in the working-age population.
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