Funcas expects the Spanish economy to reach the level of activity prior to the pandemic at the end of this year after growing by 1.5%, five tenths more than forecast in January, in a year that will go from strength to weakness and which represents a clear slowdown compared to the 5.5% recorded in 2022, according to the CEO of the Funcas think tank, Carlos Ocaña, and the director of the Coyuntura (Economic Situation) section, Raymond Torres, in the update of the forecasts for Spain in the period 2023-2024.
The contractionary impact of monetary policy and financial tensions will become more visible after the summer, when GDP growth will lose momentum. This explains the contrasts in the quarterly growth profile: after the upturn in the first two quarters, a slowdown is expected for the rest of the year. This slowdown will carry over to 2024, which has led to a cut in the forecast for that year to 1.4%, four tenths of a percentage point less than in January.
The Funcas CEO, Carlos Ocaña, pointed out that “this scenario of weak growth and high inflation in Spain and in Europe as a whole will probably characterise the entire forecast period”. The director of Funcas, Raymond Torres, pointed out that “the Next Generation would explain almost half of the expected growth in investment, and would contribute four tenths of a percentage point of GDP growth”. The other driver of demand will be public consumption.
Private consumption, however, will barely make any headway, weighed down by the loss of household purchasing power and the shrinking of the buffer of excess savings inherited from the pandemic. The household savings rate fell in 2022 to 7.2% of annual gross disposable income, from 13.7% the previous year. A further fall to 6.7% is expected this year.
The contribution of the external sector has been revised significantly upwards – seven tenths – due to the boom in foreign tourism, which should exceed pre-pandemic levels in the coming season, and the good performance of merchandise exports and non-tourist services.
The labour market will remain one of the main factors of resilience of the Spanish economy. Despite the slowdown in activity, Funcas forecasts the creation of close to 200,000 net jobs this year (in full-time equivalent terms) and another 170,000 in 2024. The unemployment rate will fall to 11.9% in 2024, still high by European standards.
The revenue boost from inflation and new taxes will allow the public deficit to fall. But the cut will be slight, to 4.5% of GDP, because of the slowdown in the economy, anti-inflation measures, indexation of pensions and higher financial charges due to higher interest rates. By 2024 it is expected to fall to 4.3%. In that year, public debt will be around 110% of GDP.