Positive surprises have become a constant in the Spanish economy. Just before this Tuesday the International Monetary Fund (IMF) updates its GDP growth forecasts and just a few days after the INE publishes the progress of the National Accounts for the third quarter, two of the main private analysis centers, BBVA Research and Funcas, have raised their projections for the progress of activity in our country to 2.9% and 3%, respectively.
The forecasts are once again accelerating and leaving the figures of the Government’s latest macroeconomic table short, which points to a growth of 2.7% this year. A few weeks ago, the OECD already placed its estimate at 2.8%. Tenth up or tenth down (not insignificant at all, because they translate into just over 1,000 million reais), the first conclusion is that Spain will continue to lead the main partners of the eurozone, even despite the impact of Italy’s weakness, France and, above all, Germany, whose industry is in recession and its economy as a whole is stagnant.
The projections for 2025 and 2026 allow us to draw the second important conclusion about the moment of our country. Experts warn that tourism and public spending have peaked as drivers of activity and point out that family consumption and business investment must definitively take over. Funcas forecasts GDP growth in 2025 of 2.1%. BBVA Research of 2.4%. In this case, the second agrees with the Government, the first falls short. In 2026, the Executive’s estimate of progress remains at 2.2%. In short, a slowdown is assumed.
Taking Funcas data as a reference, the latest published, Spain’s GDP level will exceed the pre-pandemic level at the end of 2024 by 6.7 percentage points, that at the end of 2019, and in 2025 by 8.9 percentage points. . Meanwhile, the GDP level of the eurozone as a whole will rise to 4.2 and 5.7 points, respectively. The headlines and political accusations about our country being at the tail end of the recovery have aged very poorly. A catastrophic story that could only prosper due to the INE’s error in the calculation of the National Accounts (as explained in this information), and that after three historical corrections has still not been completely corrected.
In this scenario, the reactivation of the fiscal rules of the European Union (EU) is a first brake on the economic activity of our country. The Government has already sent its Fiscal and Structural Plan for the next seven years to the European Commission, in which it promises discipline that entails limiting the annual increase in “net primary spending” to 3% on average between 2025 and 2031. Ignoring the technical complexity and the lack of details of the calculation of this new ratio that will be monitored from Brussels, what means is that “public consumption” will no longer be a decisive driver of GDP growth, as it has been from 2020 until this year .
“A moderation in public consumption is expected, since European fiscal regulations, together with market surveillance, limit the room for budgetary maneuver,” summarizes Funcas, whose forecasts were presented this Monday by its economic situation director, Raymond Torres. .
In the case of tourism, the limit is not imposed, but rather it is a ‘ceiling’, which if it has not already been reached, is very close, which has been reflected in its impact in the large capitals and the main destinations, both due to its pressure on housing prices and the general deterioration of living conditions in those places.
“The reconversion of hotel beds towards higher quality segments, the progressive deseasonalization of tourism and the diversification of the countries of origin of visitors”, which BBVA Research lists, have helped to lengthen the ‘boom’ of tourism in Spain.
But the great positive surprise in terms of the future of our foreign sector are the exports of other types of services (consulting, related to technology, communication…).
·The Minister of Economy, Carlos Body, highlighted this in the interview he gave to elDiario.es at the end of September: “Non-tourist services, which are services to companies with greater added value, right now contribute more in terms of exports than tourism itself.”
Spain has followed the prevailing trend in the rest of our partners, with a transformation of the sectoral structure and the labor market, which can be observed, for example, in the increase in employment in “knowledge-intensive” services, according to the definition of Eurostat, regarding total employment in services. At the end of 2023, this type of jobs is already close to half, according to BBVA Research.
The boost in the labor market, led mainly by foreign workers, and the less precariousness that has favored the labor reform and the increase in the Minimum Interprofessional Wage (SMI) are the main support for household consumption to remain a fundamental piece in the advance of Spain’s GDP. The reductions in interest rates by the European Central Bank (ECB) help increase the purchasing capacity of households, along with the moderation of inflation.
These two factors that ‘add up’ collide with the difficult access to housing in the capitals and in the main tourist destinations due to the escalation of prices and, on the other hand, with an unusual accumulation of savings, as seen in the following graph. A household savings rate above the average of recent years that is concentrated among the richest and that is directly related to the housing market, but also to other circumstances that experts cannot explain, but which They are a threat to consumption.
“Current savings levels have only been observed in contexts of high uncertainty. It is the first time that these levels have been seen in an environment of constant job creation. Although the reduction in interest rates will allow greater growth in consumption, there is evidence that the benefits of the recovery are being concentrated in groups with a lower marginal propensity to consume. Furthermore, the increase in employment is disproportionately concentrated in immigrants,” explains the BBVA Research team of experts.
“On the positive side, the household savings rate could fall more than expected, generating a significant boost to household consumption. Furthermore, it is worth highlighting that both households and companies have improved their financial situation in aggregate terms,” say Funcas.
The moderation of inflation (especially energy costs) and the low salaries of workers in our country reinforce the international “competitiveness” of companies in our country, which also appreciate the relaxation of financing conditions. However, despite the growth in the profits of companies – especially the largest ones and those that have taken advantage of the inflation crisis to increase their profits – and the European billions in subsidies and ‘cheap’ financing deployed Due to the Recovery Plan, business investment has not taken off.
“The accumulation of fixed capital continues to show levels below what was observed before the pandemic, especially in components that should have benefited from the funds linked to the Recovery Plan. Companies also do not seem to want to expand their productive capacity, nor are resources encouraging the arrival of companies or sectors that require the construction of new work centers. All of this in an environment where public works bidding is slowing down and could be leading to a lower boost from these funds to growth,” they lament from BBVA Research.
“Investment will rebound slightly as the execution period of the Next Generation funds approaches and as the reduction in interest rates encourages recourse to credit,” say Funcas.
“The main risk to the fulfillment of our forecasts continues to come from the geopolitical sphere, especially in the event of a worsening of the crisis in the Middle East. Another risk comes from the situation of some of the main community partners, with a German economy that could take longer to recover than anticipated, and financial markets attentive to the fiscal situation in France. In this regard, the persistence of a high public deficit poses a risk to fiscal sustainability and the room for maneuver of Spanish economic policy in the face of possible disturbances,” they conclude from the last analysis center.
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