BBVA Research raises its growth forecast for Spain to 2.4% in 2023 and lowers that for 2024 to 2.1%

Research by BBVA has raised its growth forecast Gross domestic product (GDP) of Spain up to 2.4% in 2023, compared with a forecast of 1.6% in March, although he lowered his estimates for 2024 from 2.6% to 2.1%. According to the latest report The situation in Spainpresented this Tuesday, this improvement in projections for 2023 is explained by revisions carried out by the National Institute of Statistics (INE), but also the “surprising and positive” evolution of exports, which compensates for the sluggish domestic demand.

BBVA Research’s new projections for 2023 exceed by three-tenths the estimate sent to Brussels by the Government as part of the Stability Program, which estimates a 2.1% advance for the Spanish economy this year. However, the BBVA research service decided to lower the growth forecast for 2024 from 2.6% to 2.1%, due to greater uncertainties in the world economy for next year.

This forecast below is an estimate by the Government which predicts economic growth next year of 2.4 percent.

Good export dynamics, but low domestic demand

According to the report, better inertia during the end of 2022 and stronger-than-expected dynamics in the second quarter of this year explain half of the improvement in the growth forecast for 2023.

On the one hand, INE revised the GDP for the second half of last year upwards by almost half a percentage point. On the other hand, it is estimated that the economy could show an improvement of 0.7% in the second quarter of 2023. four tenths more than forecast three months ago. “Exports are behind the good results of the economy, with a particularly significant contribution from services,” pointed out BBVA Research economists.

This progress is occurring despite the “sluggishness” of domestic demand. According to research by BBVA, cumulative decline in household consumption in the last quarter of 2022 and the first of 2023 (almost 3%) was more in line with the recession expected last fall than with the expansion in aggregate demand that was finally observed.

Also, an investment remains 2% below the figure achieved in the third quarter of the previous year. The factors behind this contraction are, on the one hand, the rise in energy and food prices, which reduced the competitiveness of companies and reduced the purchasing power of income and family wealth.

On the other hand, the increase in official interest rates made the financing of the private sector more expensive, which had a negative impact on sectors that use credit intensively.

However, some of the factors that affected domestic demand are expected to partially reverse in the coming months, which makes it possible to predict a greater contribution to the growth of this component of GDP in the following quarters: the price of raw materials, the cost of financing and household savings.

500,000 more jobs, twice as many as the previous forecast

BBVA Research emphasizes this employment and prices show more positive behavior than expected in March. As the report points out, companies are creating jobs at a rate that would add almost 500,000 jobs per year, twice as many as expected in March.

Likewise, from February to May, inflation showed data consistent with a decline that can be sustained over time, reaching averages of 3.4% in 2023 and 3.2% in 2024.