The Bank of Spain assures that inflation would fall to 2.3% in 2024 if the Government maintained all the shock measures that are currently in force and that expire at the end of 2023. In updating its economic projections, the institution only contemplates that the Government will extend the VAT reduction on food and subsidies for public transport and leave price increases at 3.3, almost the same as this year.

According to the team of economists led by Ángel Gavilán, if the Executive also extended the reductions in taxes on electricity and gas, inflation would moderate another point on average during the next year, from 3.4% in the previous year. that will end this year, always on average.

The Bank of Spain rules out this scenario due to the need that Spain will have to reduce the deficit (the imbalance between public income and expenditure) with respect to GDP to below 3% with the entry into force of the new EU fiscal rules since January. , which are currently being negotiated.

Its forecasts are that VAT on electricity and gas will return to 21% in 2024 from the current 5%. And that the special electricity tax will return to 5.11%, from 0.5%. Meanwhile, the current VAT reductions on food would be extended until July next year, and the discounts on public transport would last until 2025. The new coalition government will decide next week.

According to these budgets, which do not mention the cap on gas, the Bank of Spain indicates that the 3.3% inflation it projects for 2024 will be largely explained by the increases in food prices, which will continue to be suffocating. For its part, energy will subtract from the average inflation for the year that begins in just a couple of weeks.

Regarding economic growth, the institution leaves it at 1.6% (2 tenths less compared to the September estimate) in 2024. Mainly, due to the resilience of household consumption despite the accumulated damage from price increases and the interest rates of the European Central Bank (ECB). With this growth, the unemployment rate will only be reduced to 11.7%, from 12.1% in 2023. GDP growth would rise to 1.8% assuming that all anti-inflation measures were extended.

The Bank of Spain’s new projections exercise includes the recent revisions of the INE’s National Accounts, which advanced the recovery of GDP after the historic shock of the pandemic to 2022.

According to these estimates, published this Tuesday, private consumption (of families) will contribute just over 1 point to the advance of GDP (Gross Domestic Producer) in 2024 thanks to the strength of the labor market after the labor reform, the increase in Salary Minimum Interprofessional (SMI), to the rest of the measures to protect workers’ incomes and the salary increases that they have achieved in recent months.

Business investment (which in the National Accounts is called “gross capital formation”) will explain about half a percentage point of next year’s 1.6% economic growth. Public consumption (of the different Administrations) will barely add up to a few tenths. Investment in general will be supported by the deployment of the Recovery Plan.

Meanwhile, the foreign sector will subtract a few tenths from the GDP growth due to the weakness of the international environment, especially in some of the main partners of the eurozone. The region, as a whole, will remain stagnant or even enter a technical recession (two consecutive quarters of contraction in activity), from this fourth quarter, or in the following ones.

The economy will grow 2.4% in 2023

In 2023, “household consumption was already one of the main drivers” of the economy, which will close the year with an increase of 2.4% (in the fourth quarter it will be 0.3%, similar to the third quarter) .

In the current price crisis, the activity of our country has had the advantage of a greater weight of sectors related to services, and specifically tourism, compared to other European countries. The most industrial and most intensive economies in electricity or gas have suffered the most from the rise in energy prices.

On the other hand, in this year that is ending, the foreign sector has been key, both for tourism and for a significant growth in exports to Germany and the eurozone as a whole. With some relevance to the automobile industry. This sector has been reactivated this year after suffering damage in 2021 and 2022 from problems in global supply chains due to the end of the pandemic.

Inflation will finally normalize in 2025

In 2025 and 2026, the Bank of Spain considers that GDP growth in our country will take a cruising pace, close to 2%. In addition, it projects that inflation will normalize, and will moderate to 2% from 2025 itself. That is, it will remain within the monetary policy objective, which is decided by the ECB in the eurozone.

“Although the prospects for the Spanish economy in the coming years are relatively favorable, from a more structural point of view, it is still necessary to ambitiously address some of the main burdens that have been conditioning Spanish economic activity in recent decades. . In particular, the low productivity, the high unemployment rate and the considerable fiscal imbalance,” explains the Bank of Spain.


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