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The Spanish economy will grow by 3.1% this year, according to the latest forecasts before year end published on Tuesday by the Bank of Spain. This is three tenths of a percentage point higher than the forecast the institution gave just three months ago and four tenths of a percentage point higher than the government's estimate. This growth, four times higher than that expected for the eurozone average, makes Spain the great economic engine of the eurozone due to the "strength" of private and public consumption, both being higher than expected in the second half of this year.
All this has been achieved despite the impact from the two Dana storms that hit large swathes of Spain, which has meant a disbursement of public aid that will increase the public deficit, but which will have a very small impact at the macroeconomic level. This boost in growth is also despite the fact that business investment is low, according to the Bank of Spain, whose governor is former minister in central government José Luis Escrivá. The director of statistics at the Bank of Spain, Ángel Gavilán, explained that they do not have a clear answer as to why investment has remained "flat" in recent years, especially taking into account the availability of European funds. However, some studies suggest that uncertainty in the central government's economic policies may have a lot to do with this and that Spanish companies are more "sensitive" to this aspect than others elsewhere in Europe. Moreover, credit conditions have tightened in the last two years due to the rise in interest rates, although they are now beginning to ease.
Economists at the Bank of Spain are surprised by the "intense" moderation of inflation in the second half of the year, which will end the year with an average rate of 2.9%, half a percentage point lower than at the end of 2023. Inflation is expected to stay low in 2025 (2.1%) and 2026 (1.7%), but in 2027 the institution expects it to pick up again due to the introduction of the EU's new emissions trading scheme, although they recognise that there is an "extraordinary degree of uncertainty" surrounding this.
The deficit forecast for this year is 3.4% (four tenths above the government's forecast), mainly due to the support measures deployed in response to the Dana weather events, but as they are "transitory", Gavilán believes they "should not be taken into account" by the European Commission, although this "is not a given."
The truth is that the Bank of Spain's public deficit expectations are far from those of PM Pedro Sánchez's government, and not only for this year because of the Dana disaster. For 2025, while the government promises Brussels a deficit of 2.5% of GDP (gross domestic product), the Bank of Spain remains at 2.9%. For 2026 the difference is even greater, with the government expecting a deficit of 2.1%, while the Bank of Spain forecasts a deficit that will then remain at 2.7%.
For next year the Bank of Spain has also improved its growth forecast by three tenths of a percentage point to 2.5%, one tenth of a percentage point more than the government's estimate. Here's the but: it considers that growth cannot continue at this rate, especially in the foreign sector, where it seems that the ceiling is already being reached. "Tourism has surprised us for being on the up again in 2024 due to the pent-up demand from the pandemic and changing patterns in [travel] habits, but such high growth rates are slowing down," said Gavilán. In other words, although tourism will continue to be "key" to Spain's GDP and "will not go backwards", it will not be able to contribute as much as it has done to date.
As for housing, the minister for the Economy in the national government, Carlos Cuerpo, has already pointed out that the problem is "far from being solved", although it is being corrected thanks to the policies implemented to increase supply. According to Gavilán, supply is beginning to have an effect "but less than is needed" and investment and construction are speeding up somewhat. In fact, according to the Bank of Spain, the construction execution indicator points to housing investment picking up speed in the fourth quarter.
All this in a context in which house sales remain close to the level reached in mid-2022 and in which house prices grew by 8.1% year-on-year in the third quarter, a rate that is three tenths of a percentage point higher than that observed in the previous quarter.
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