Winter Economic forecast 2024 for Spain

The Spanish economy is estimated to have expanded by 2.5% in 2023, marginally above what was projected in autumn, with preliminary data for the fourth quarter pointing to an acceleration (0.6% q-o-q) compared to the third quarter. Private consumption and, to a lesser extent, investment were the key drivers of GDP growth throughout 2023. External demand, which contributed negatively to economic expansion in the second and third quarters of last year, picked up in the fourth quarter.

Real GDP growth is forecast to moderate to 1.7% in 2024, unchanged from autumn, owing to the combination of several factors. On the external side, the fading impetus of the tourism sector and the still weak economic situation in Spain’s main trading partners are projected to limit the dynamism of exports. On the domestic front, the lagged impact of interest rate hikes is set to weigh on domestic demand, especially in light of the still elevated, albeit declining, internal and external debt-to-GDP ratios.

 

 

Still, consumption and investment are set to sustain the economic expansion this year, also benefitting from a higher-than-anticipated carry-over from 2023. Private consumption is expected to be supported by further real income gains for households and by the partial use of the still high level of household savings. After the buoyancy showed in 2023, employment growth is projected to decelerate this year, but will still contribute to sustaining economic activity. Investment growth is expected to be underpinned by the broadening implementation of the Recovery and Resilience Plan. It will also be upheld by the healthy financial position of non-financial corporations and the expected easing of financing conditions over the forecast horizon. GDP growth is set to accelerate again in 2025, to an unrevised 2.0%, on the back of reinvigorated investment growth and the projected positive contribution from external demand.

Annual HICP inflation decelerated to 3.4% in 2023, favoured by the sustained decline in energy prices throughout the year. Underlying price pressures eased more gradually as the pass-through of high energy prices to other items faded out in the last quarter of 2023. Headline inflation is set to moderate further this year, reaching 3.2% on average, with the downward trend of underlying price pressures expected to continue in the coming quarters. At the same time, the expected phasing out of most government measures to mitigate the impact of high energy prices would exert upward pressure on inflation. HICP inflation is forecast to decrease further to 2.1% in 2025. For 2024, this is slightly lower than in the Autumn Forecast, while the forecast for 2025 remains unchanged.