Madrid (EFE) pre-pandemic GDP levels.
“There are several forces playing in opposite directions”, said the general director of Funcas, Carlos Ocaña, this Monday in the presentation of the updated economic forecasts for Spain in the period 2023-2024, who has pointed out that 2023 will be an exercise ” uneven, with a first semester with higher growth rates and a much less dynamic second semester”.
Ocaña has detailed that in favor of the economy are the “de-escalation of energy products, the full normalization of tourism, the greater public spending and the better rate of execution of European funds”, factors that will have a greater influence on the first half of the year
Regarding this better execution of the funds, the director of the Funcas Situation, Raymond Torres, has pointed out that at the beginning of March 10,800 million euros had been authorized, “practically double that of the same period of 2022”.
On the contrary, the second part of this 2023 will be influenced to a greater extent by the impact of the restrictive monetary policy, with the rises in interest rates, and financial tensions.
By quarters, the economy will advance 0.4% in the first, 0.3% in the second, 0.1% in the third and will close the last quarter without registering any variation.
Increase in ECB interest rates
The forecasts are based on the assumption of an increase in the interest rates of the European Central Bank (ECB) from the current 3% to 3.75% at the end of the year, before lowering in 2024, which according to Torres could mean that the Euribor exceeds 4%.
For 2024, Funcas foresees a growth of 1.4%, since it transfers the slowdown expected for the end of this year to the next, so that it cuts the previous forecast by 0.4 points.
Ocaña has also pointed out that the persistence of a public deficit above 4% -according to Funcas forecasts it would be 4.5% of GDP in 2023 and 4.3% in 2024- is “one of the greatest threats” for the Spanish economy, especially due to the withdrawal of support from the ECB in the purchase of public debt and the return to fiscal rules.
As regards employment, Funcas maintains its unemployment forecast in 2023 at 11.9% and considers that the labor market “will resist” in the 2023-2024 period with the creation of some 370,000 net jobs.
Inflation will continue
“Inflation will continue to accompany us, prices will continue to grow well above the ECB’s objective,” Ocaña warned, hence the institution expects the general rate to rise by 4.8% this year.
Torres considers that inflation is one of the most pronounced “contractive elements”, inasmuch as “it has been eroding purchasing power”, and although inflation is lower than in the rest of the euro area, “it is not yet in sight” underlying rate moderation.
Regarding the impact of the reduction or elimination of VAT on some products, Torres has indicated that it is “neutralized” because other factors such as the general increase in prices paid by farmers are more powerful.
“(These types of measures) have a high budgetary cost in relation to their final impact,” highlighted the director of the Funcas Economics.
Domestic demand worsens, but external balance improves
Torres has indicated that business margins grew more than wages in 2022, and although he expects this gap to close until it equalizes in 2024, “the savings inherited from the pandemic will have been practically exhausted for most households.”
This motivates a downward revision of 0.2 tenths of a point in domestic demand, which would contribute 1.3 points to GDP, although it will continue to be the “main engine of the economy”, a pull that Torres attributes to the stimulus from European funds, that “would explain close to half of the expected growth in investment, and would contribute four tenths of GDP growth.”
However, Funcas has revised upward the contribution of the external sector by 0.7 tenths (so that the foreign balance would contribute 0.2 points to GDP) “due to the boom in foreign tourism and the good performance of merchandise exports and of non-tourist services”.