The Bank of Spain confirmed on Tuesday that our economy will lead growth in Europe in 2023 and 2024. The institution leaves the forecast for this year at 2.3%, coinciding with the OECD’s improvement and the European Commission’s expectations. and reduces the next one by 4 tenths to 1.8%. However, he remains confident that the unemployment rate will end this year at 12% and fall further to 11.3% in 2025.
The ECB raises interest rates by a further 0.25 points to 4.5%, the highest level since 2001, despite the risk of recession in Europe
Further
The new estimates of the Bank of Spain do not take into account the upward revision of the INE’s GDP calculation from this Monday until 2022, due to “lack of time” and because “we do not know the quarterly breakdown”, clarified Ángel Gavilán, General Director of Economy and Economic Statistics the Bank of Spain.
However, the downward revision in the behavior of GDP (Gross Domestic Producer) in 2024 is explained by “the negative spillover effect resulting from lower growth compared to what was forecast in June, both in the second and second quarters of 2023.” Half of the same year (an increase of 0.3% is estimated for the third quarter), explains Ángel Gavilán.
In addition, the reduction of 4 tenths in the forecast for next year is justified by “the increase in energy prices”, which will put renewed pressure on general inflation, as well as by the deterioration of the external environment and the consequent greater tightening of financial conditions on the increases in official interest rates of the European Central Bank (ECB).
In fact, the Bank of Spain has raised the forecast of price increases for the whole of 2023 from 3.2% to an average of 3.6% and from 3.6% in 2024 to 4.3%. “The year-on-year decline in energy prices (mainly oil and therefore fuels) has narrowed and the slowdown in food inflation has moderated,” he explained.
More expensive oil and gas
Specifically, in June it was expected that the price of oil would remain below $78 per barrel in the coming months. It is now expected to exceed $82 by at least the first quarter of next year. The same trend can be observed with gas, the price of which is expected to be around 40 euros per MWh, but is currently closer to 50 euros per MWh.
On the other hand, the institution points out that in 2024, the withdrawal of the shock measures that the government still keeps in force, such as the reduction in VAT on basic foodstuffs or subsidies for public transport, will be noticeable in the evolution of prices.
The institution assumes that inflation will not normalize until 2025. Of course, “in a context where the moderation in the rise in food prices and underlying inflation is expected to continue, both in manufactured goods and in non-energy services involving leisure, restaurants and tourism have been closed recently contributed to excessive inflation,” adds Ángel Gavilán.
In fact, the Bank of Spain has cut its GDP growth forecast in 2025 by just a tenth to 2%. What stands out both next year and the year after is the expected resilience of private consumption despite the damage caused by inflation and the ECB interest rate hikes.
The institute is also optimistic about business investments, mainly due to the implementation of the recovery plan. Meanwhile, observe the sharpest slowdown in the foreign sector, which was one of the main drivers of the economic recovery after the COVID shock in 2020, both due to the greater weakness of our European partners and other of our key buyers who have gone through the rise in oil – and energy prices in general, as well as the cap on tourism, which has broken records this summer.
Given these expectations, the Bank of Spain is confident that the unemployment rate will be 12% in 2023, falling by 11.5% in 2024 and slightly more sharply to 11.3% in 2025. Some key messages are that rising interest rates “are already having an impact on activity” but that “most of these will be felt in 2024.”
Likewise, the coalition government’s measures have sustained activity in 2022 and 2023, and “their eventual withdrawal at the end of this year will have a negative impact on growth” next year. Finally, Ángel Gavilán downplays the impact of political uncertainty due to the negotiations to form an executive.
Spain’s growth quadruples that of the eurozone
“Spain continues to lead the economic growth among the main European economies, with a GDP growth forecast almost four times higher than the Eurozone average (0.6%),” emphasized the Ministry of Economy this Tuesday.
“In 2024, Spain will lead economic growth for another year, being the only country among Europe’s major economies for which the OECD maintains its GDP growth estimate at 1.9%, in a deteriorating environment,” they added from the ministry the acting First Vice President Nadia Calviño.
