Reading the forecasts published yesterday by the Fundació de les Caixes d'Estalvi (Funcas) has two sides. The positive thing is that they are raising the growth of the Spanish economy by half a point for this year compared to their January calculations, to 1.5%. And, in addition, this will allow the Spanish economy to recover the level of pre-pandemic activity at the end of the year, a chapter in which it lags behind European economies.
On the other hand, the not-so-friendly side is that it also predicts a stagnation of the economy in the second part of the year, with the last two quarters in which the GDP will only grow by 0.1% in the third and will be flat in the fourth; a slowdown that will last until 2024, a fact that leads Funcas to reduce by four tenths the forecast increase in GDP for the year, which leaves it at 1.4%.
"We started the year with a good record, but the impact of interest rates and the loss of purchasing power of consumers will have their effect in the second half of the year", they point out from the study center.
The impact of monetary policy, high inflation and the tensions in the financial markets that arose after the fall of Silicon Valley Bank play against growth. These are factors that will be particularly noticeable after the summer and will reduce the vigor of the activity. Instead, the elements that drive growth are the de-escalation of energy prices, the full normalization of tourism and the increase in the execution rate of European funds.
In this context, it will be internal demand that will pull the most from the economy, thanks in large part to the stimulus provided by European funds. "The Next Generation EU would account for close to half of the expected growth in investment and would contribute four tenths of GDP growth", stated the director of the situation at Funcas, Raymond Torres. The other driver of demand will be public consumption. On the other hand, private consumption will practically not advance. Here you can see the loss of purchasing power of families, and also that the savings mattress accumulated during the pandemic is no longer enough.
On the other hand, the drop in energy prices will help to moderate inflation, which will continue at high levels, but already far from the peaks recorded in recent months.
In addition, Funcas also warns of the high deficit that will be maintained during these two years. It is true that the increase in revenue caused by inflation and the new taxes will make it possible to reduce the deficit this year, but the cut will be limited, up to 4.5% of GDP. The downgrade will be held back by this slowdown in the economy, anti-inflation measures, the indexation of pensions and the increase in financial burdens caused by rate hikes. In this way, by 2024 it is expected to drop to only 4.3%, one point above the central government's forecast.
"The persistence of a public deficit of more than 4% is a factor of vulnerability in a context of withdrawal of support from the ECB both in terms of interest rates and the purchase of public debt", point out from Funcas, and remember that in 2024 the reactivation of European tax rules will take place.
