The International Monetary Fund (IMF) has followed the script and confirmed that Spain will lead the growth of advanced economies in 2024 and the next year. The international organization has raised the GDP (Gross Domestic Product) growth projection by half a point to 2.4% for this year, as it had already anticipated and in line with the Government and the rest of the institutions, and leaves it at 2.1% in 2025, after growing by 2.5% in 2023.
The upward revision of our country’s forecast is the most important in the update of the IMF’s global economic outlook. According to its estimates, the eurozone as a whole will grow by 0.9% in 2024, and by 1.5% in 2025. Among the community partners, the weakest economy will be Germany, whose GDP will advance by 0.2% in 2024 and 1.3% in 2025, after contracting three-tenths of a percentage point last year. The projections for France and Italy remain at 0.9% and 0.7% for this year, and will barely accelerate for the next.
The strength of the foreign sector (due to tourism but also to exports of other services), the record creation of jobs (which is boosting household consumption despite inflation) and the deployment of the Recovery Plan (which should stimulate business investment) are three of the factors that differentiate Spain from its comparable economies.
But the IMF report, published on Tuesday, does not only bring good news. It also warns of sticky inflation, which is the main reason why the positive consequences of economic growth are not reaching all families and businesses.
“Rising service prices are weighing on disinflation and complicating monetary policy normalisation,” the IMF said. “As a result, the risk of higher inflation is increasing and a scenario of higher interest rates for longer is emerging amid rising trade tensions and rising policy uncertainty,” it added from a global perspective.
The European Central Bank (ECB) is set to decide on official interest rates on Thursday, after a first cut in June from 4.5% to 4.25%, following the most aggressive cycle of monetary austerity in its history to fight inflation. This strategy seeks to suffocate families and businesses by making mortgages and loans in general more expensive, thus damaging demand and investment and thus reducing pressures on prices.
“However, the gradual cooling of labour markets, together with an expected decline in energy prices, should return headline inflation to the target (in theory 2%) by the end of 2025 (in all advanced economies),” the international organisation stresses.
In Spain, general inflation slowed to 3.4% in June due to price cuts at the pumps – in the eurozone it is closer to 2%. The cumulative increase in the price of the basket of products and services included in the CPI is 19% since 2021 in our country. A ‘bite’ into workers’ pockets that also does not exactly reflect the entire cost of living, because it does not include the difficult access to housing, largely due to the rise in interest rates by the ECB but also for other reasons, such as tourist rentals.
“Inflation figures continue to reflect the ability of the Spanish economy to combine the highest economic growth among the main countries in the Eurozone with a moderation of prices and the maintenance of measures to continue reducing food prices,” the Ministry of Economy maintains.
The IMF also has a say on the need to “make growth and anti-inflation measures compatible”. “Policymakers face two tasks: to persevere in restoring price stability and to address the legacies of recent crises, including replacing lost buffers and sustaining growth.”
The return of fiscal rules to the European Union (EU) is part of this “replacement of lost cushions”. To recover them, the coalition government of our country is obliged to leave the budget deficit (the imbalance between expenses and income) below 3%, the objective for this year, and to limit the growth of public spending, as announced this Tuesday after the Council of Ministers. In 2025, the goal is to reduce it to 2.5%, according to the First Vice President and Minister of Finance, María Jesús Montero.
“As fiscal room for manoeuvre shrinks, commitments to achieve fiscal consolidation targets (adjustments, or ultimately cuts) must be seriously adhered to,” the IMF concludes.
Economic growth and deficit reduction will allow the ratio of public debt to GDP to be reduced to below 100% in 2027, “recovering all fiscal space” —according to Economy Minister Carlos Cuerpo— during the pandemic, in which the Government had to make a historic effort in public spending to mitigate the damage caused by the COVID shock.
“Spain will be the engine of growth among the major European economies,” stressed the Body on Tuesday, in the press conference following the Council of Ministers. There are different vectors that strengthen this growth. Firstly, the creation of jobs. With the aim of creating one million jobs in the coming years — surpassing the 22 million people affiliated to social security — and of gradually lowering the unemployment rate to levels close to 8% in 2027 — a barrier under which full employment is theoretically considered — “without imbalances.”
Another of the major challenges is to improve productivity, which is also projected by the Minister of Economy, which “is compatible” with the reduction of the official working day, one of the commitments of the coalition government for this legislature. This is a support for family consumption. Meanwhile, Cuerpo has also been optimistic about business investment, favored by the Recovery Plan, which will reach its maximum impact on total GDP in 2024 and 2025.
Source: www.eldiario.es
