The Bank of Spain raises the growth forecast to 2.3% thanks to the boost in foreign tourism
The Bank of Spain has once again improved its growth forecast for the Spanish economy for this year. Specifically, the banking supervisor estimates that the national GDP will advance at a rate of 2.3% this year, four tenths more than what it predicted in March and seven tenths above what it calculated in December, thanks, among other things, to the pull of foreign tourism. The Spanish branch of the European Central Bank (ECB) has also slightly revised its inflation expectations for this year. Consumer prices will close this year 3% above what was seen last yearthree tenths more than expected in March.
This is reflected in the latest exercise of macroeconomic projections that the banking supervisor published this Tuesday. The strong pull of foreign tourism in the first quarter and of other exported services—in which The Spanish economy grew by 0.7% and not 0.4% as the supervisor initially thought— surprised the Bank of Spain, which has been forced to revise its forecasts upwards.
The new estimate of the Bank of Spain aligns with the International Monetary Fund (IMF), which last week also revised its forecasts and raised the growth expectation for the national GDP to 2.4% in 2024. It is expected that other organizations such as the European Commission, Airef or the OECD will also improve their forecasts as publish quarterly updates of their analysis. Despite this wave of favorable reviews, the Government still maintains its growth expectation for this year at 2%.
To put this figure in context, a growth of 2.3% is a figure somewhat lower than the average recorded in the recovery period after the great financial crisis of 2008. However, in a European context of economic stagnation in Europe, it leaves to Spain far above its main partners. The GDP growth expected by the European Commission for Germany (0.1%), France (0.7%) or Italy (0.9%) is much lower than that expected for Spain.
Slowdown in the second quarter
The Bank of Spain points out that the economy will continue to advance at a good pace also in the second quarter, although It will do so at a slightly slower speed.. The supervisor predicts an advance in quarterly GDP of 0.5% between April and June compared to the January-March period. A figure in line with what organizations such as Airef (0.5%) or the consulting firm Esade (0.6%) expect. The rise in employment, which has also remained strong in the second quarter, will sustain activity
Beyond the second quarter, household consumption is expected to continue growing thanks to the favorable evolution expected in employment, wages and inflation. However, the level of per capita consumption would not recover its pre-pandemic level until 2025. Investment, which has been very weak after the pandemic, should also continue to recover, driven by the deployment of European recovery funds. In the long term, the Bank of Spain believes that the economy will slow down. The GDP growth expected for 2025 is 1.9%, which would reduce two tenths to 1.7% in 2026.
More inflation, less deficit
One of the negative surprises that the banking supervisor has noticed these months has come from the prices side. Inflation has risen considerably in recent months (from 2.9% in February it went to 3.8% in May) and, furthermore, it did so above forecasts. The reasons are a higher oil price than expected and the resistance of services inflation, which remains at high levels. Regarding food, the supervisor foresees inflation of 4.5% still in 2024.
Finally, the Bank of Spain has slightly improved its deficit and debt forecasts for this year and the next two in line with the update of its macroeconomic scenario. Nevertheless, The public deficit will remain slightly above 3% of GDP (the limit allowed by European tax rules) and the public debt will remain above 105% still in 2026well above the maximum levels established by Brussels.
Goodbye to the governor
The publication of spring macroeconomic forecasts coincides with the end of the term as governor of Pablo Hernández de Cos, who has led the Bank of Spain between 2018 and 2024. The BOE published this Tuesday his resignation as governor and the Government must now appoint a successor, a task that will likely be delayed until after the summer.
The appointment will be carried out by the Ministry of Economy headed by Carlos Body, which has already made it clear that there is a three-month window to name a successor and “there is no rush” to do so. Meanwhile, The functions left vacant by De Cos will be assumed by the deputy governor, Margarita Delgado, on an interim basis Of course, with important limitations in his mandate. For example, he can participate in the ECB’s monetary policy meetings, but does not have the right to vote.
“It is evident that the fact that there is no governor alters the functioning of the Bank of Spainbut the institution has mechanisms,” said Ángel Gavilán, general director of Economy and Statistics at the press conference presenting the forecasts this Tuesday. Gavilán has highlighted the role of De Cos in the transformation of the Bank of Spain, an institution which suffered a significant loss of credibility during the great recession, among other reasons, due to its inability to warn in time of the bursting of the real estate bubble.
