The Bank of Spain improves its inflation expectations for 2024, but lowers the expected growth to 1.6%

The Bank of Spain has revised downwards its inflation and growth expectations for Spain for next year. A 2024 in which the stagnation of the eurozone will continue to generate uncertainty about the Spanish economy, which will grow less than in 2023. The banking supervisor points out that consumer prices will close 2023 with a rebound of 3.4%, a percentage that will fall to 3.3% in 2024 to be around 2% in 2025 and 2026. Regarding growth, the national GDP would advance by 2.4% in 2023, slow to 1.6% in 2024 and then gain traction again in 2025, with an advance of 1.9%.

The most striking change in the Bank of Spain's forecasts is in the area of inflation. The supervisor now foresees a CPI for 2024 that will be one point lower than the one predicted last September. A downward revision that occurs mainly because energy prices have surprised favorably and due to the Government's announcement to also extend the VAT reduction on certain foods and free public transport to next year.

Precisely, with regard to inflation, this Tuesday it was announced that consumer prices in the eurozone have moderated to 2.4% year-on-year, five tenths less than the figure recorded in the month of November and only four tenths of the 2% objective pursued by the European Central Bank (ECB).

The Bank of Spain expects inflation to pick up slightly again in the coming months, largely due to the end of the anti-crisis energy support measures that will expire on December 31 if the Government does not renew them.. Then, starting in the second half of the year, inflation will decline until it reaches normal levels in the final stretch of 2024.

Regarding the extension of support measures, the Executive has already stated that it is considering extending at least part of the anti-crisis package, but has not yet reported on specific measures.. At this point, the supervisor recognizes that extending energy support would contribute to further reducing inflation next year and an improvement in growth.. To the point that, if the entire energy package were extended to 2024, inflation would be 2.3%, one point less. However, delaying the withdrawal of support would postpone this effect of increasing inflation.. Furthermore, the Bank of Spain warns that extending energy support increases the risk that the structural public deficit will be more persistent.

Regarding growth, the supervisor predicts that the national GDP will advance 1.6% in 2024, two tenths less than what was estimated last September. The reduction is largely due to the review made by the National Institute of Statistics (INE) last September of the GDP data for 2021 and 2022, which left the starting point of 2023 at a higher level than previously thought.. This forecast of 1.6% that the Bank of Spain predicts is lower than the estimate of 2% that the Government manages and that it transmitted to Brussels in the Budget Plan.

The good news on the growth front is that Spain appears to have been able to withstand the European slowdown better than expected.. The Bank of Spain expects national GDP to grow by 0.3% in the fourth quarter compared to the previous three-month period. A slightly higher figure than predicted in September. The resilience of employment, consumption and confidence will be the bases that will drive growth. In addition, the banking supervisor estimates that extending the entire energy support package also to 2024 could boost growth by two tenths of additional GDP, placing it at the 2% that the Executive aspires to.

In the section on public finances, the supervisor disagrees with the Government and points out that Spain will fail to comply with European fiscal rules, which will be back in force next year after four years of paralysis.. The institution foresees a public deficit of 3.4% of GDP for next year, four tenths above the maximum limit allowed by the EU. In this way, the Bank of Spain joins other organizations such as the OECD, the IMF or the European Commission itself that also believe that Spain will deviate from the limits allowed by Brussels.

Furthermore, the institution points out that public debt will fall to 106.3% of GDP in 2024, but in the following years it will grow again, partly driven by the effect of the loans that Spain will receive under the recovery plan.. The national public liability will remain around 108.4% in 2026, a level higher than the 98.2% recorded in the quarter before the pandemic.