Updated December 19th, 2023 at 19:41 IST
Bank of Spain cuts 2024-2025 growth forecast on consumption deceleration
Spain's 2023 growth is projected at 2.4%, down from 5.8% in 2022, and 2024 is expected to see a slower expansion at 1.6%, below the initial 1.8% forecast.
The Bank of Spain has revised its growth projections for the Spanish economy in 2024 and 2025, citing a deceleration in private consumption. Despite anticipating a more significant decline in inflation than initially expected, the bank has lowered its growth forecast for this year to 2.4 per cent, down from 5.8 per cent in 2022. The fourth-quarter growth is projected at 0.3 per cent compared to the previous three months.
Looking ahead, the Bank of Spain now predicts a modest expansion of 1.6 per cent, below its earlier forecast of 1.8 per cent. While there was anticipation of a rebound in 2025 with a growth rate of 1.9 per cent, this too falls short of the initial prediction of 2 per cent, attributed to a less favourable outlook for household consumption. Factors such as increased consumer credit costs and restricted access are contributing to this subdued outlook, with consumption expected to remain the primary driver of growth in the medium term.
The positive economic impact from EU relief funds is now expected to materialise more substantially in 2025-2026, shifting from the previously envisioned timeframe of 2024.
Lower energy costs are anticipated to alleviate Spain's EU-harmonized consumer inflation to 3.4 per cent this year, below the previous estimate of 3.6 per cent. The bank projects a further decrease in inflation to 3.3 per cent in the following year, one percentage point lower than initially forecasted. In 2025, inflation is expected to rise to 2 per cent, up from the previous estimate of 1.8 per cent, primarily due to the expiration of reduced value-added tax extensions on basic food products and subsidies for public transport.
The Bank of Spain also provided insights into the labour market, forecasting a gradual decline in the unemployment rate. It is expected to decrease to 12.1 per cent in 2023, down from 12.9 per cent in 2022, with a further gradual decline to 11.3 per cent by 2026.
(With Reuters Inputs)
Published December 19th, 2023 at 19:41 IST