VALENCIA (EP). BBVA Research maintained its growth forecast for Spain’s Gross Domestic Product (GDP) at 2.4% in 2023, but cut estimates for 2024 from 2.1% to 1.8% due to a deterioration in the outlook for a “high uncertainty” environment.
“In Spain we have not revised the growth to 2023 downwards, but 2024 is another story,” said the chief economist of the BBVA Group and director of BBVA Research, Jorge Sicilia, during the press conference to present a new report on the ‘Situation. Spain’.
As Sicilia explained, the evolution of productivity per hour worked and per worker, the evolution of interest rates, the rise in oil prices and the slowdown in Europe led BBVA’s research service to lower growth for next year.
In addition, the head of Economic Analysis at BBVA Research, Rafael Domenech points out that the review recently carried out by the National Institute of Statistics of the data from the previous quarters compensates the damage to the global demand in 2023, but still does not do it in 2024.
In any case, BBVA Research emphasizes that nowhere, and least of all in Spain, there is a situation in the balance sheets of families or companies that suggests that this slowdown “is nothing more in that, a cyclical slowdown.” , where Spain has reasons to think that it will continue a positive growth difference in Europe.
And BBVA Research economists point out that, although the bias in this scenario is downward and the uncertainty of economic policy may increase in the coming months, the recovery may continue thanks to the strength of the financial position in households and companies. , the planned normalization of industrial activity, the support of European funds and the development of the working age population.
The slowdown in the euro zone and its impact on Spain
Of course, BBVA Research understands a recent deterioration in the growth prospects of the euro zone, where GDP is expected to increase by only 0.4% in 2023 and 1% in 2024 (compared to 0.8% and the 1.3% that previously expected).
The low growth of Spain’s main trading partners suggests that the contribution to external demand during the coming quarters may continue to be negative. Worsening growth forecasts in the eurozone since the beginning of the year could reduce 0.3% and 0.2% from Spain’s GDP growth in 2023 and 2024, respectively.
Inflation, on average close to 4%
Regarding prices, for BBVA Research it is difficult to see inflation falling in 2024 towards levels in line with the ECB’s objective (2%) without a significant reduction in oil prices or a recession in economy. Therefore, they expect inflation, in 2023 and 2024, to show averages close to 4% (3.7% and 3.6%, respectively).
Thus, BBVA Research expects interest rates to remain at their current level (4.5% for the refinancing interest rate). “It is likely that the pause will be long, although the bias persists that, if short-term movements occur, they will make credit more expensive,” experts expect.
Under this premise, for 2023 BBVA Research believes that the increase in interest rates will be reduced by almost two percentage points from the growth of consumption and in 2024 about one point from the growth of consumption.
A slowdown in employment compared to the first half of the year
Regarding the Social Security affiliation and unemployment data for the month of September released this Tuesday, Doménech pointed out that, although it represents a “little surprise” in terms of job creation in relation to what those observed in the first two weeks of the month, and part of the months of June, July and August, “they also reflect a slowdown compared to the first part of the year”, when the numbers were “better.”
According to BBVA Research, in the second quarter of 2023 a decrease in productivity per working hour has been observed, in addition to the beginning of a slowdown in the production of work, which is generalized in the sectors of activity, which coincides with the deterioration of some signs of trust.
“The sharp increase in total hours worked during the second quarter of the year was not accompanied by a comparable increase in GDP, which may indicate a diminishing return to the recovery process,” the report warns.
Although the weakness in job creation is widespread, BBVA Research highlights the impact on the service sector. The slowdown is particularly significant in sectors linked to tourism (restaurants and accommodation services) and public spending (public administrations and Social Security).
In this regard, experts point out that some hiring decisions may be brought forward in the first half of the year, as a result of the strong recovery in tourist spending or as a result of the cycle of election. They also found it possible that structural changes occurred in certain sectors or types of companies as a result of labor reform.
Political uncertainty and preparation of the new PGE
According to BBVA Research, uncertainty about economic policy may increase in the coming months. So far, various indicators do not show a deterioration in confidence, despite the early elections.
In any case, Doménech remembers that there is a delay in the processes to have a State Budget for the next year, which is in line with the European commitments and the reactivation of the financial rules.
Get help to reduce the deficit by 4%
For this reason, BBVA Research insists that the need to clear doubts about the way in which the public deficit will be reduced is greater, because it is expected that, despite the recovery that continues, the imbalance of accounts It will remain steady in 2023 at around 4% of GDP.
“The next Government will have to announce measures equivalent to around one percentage point of GDP if it wants to pursue bringing the imbalance below 3% of GDP, in addition to eliminating the policies adopted to ease the effect of the increase in the price of energy, energy and food”, they emphasized.