The International Monetary Fund (IMF) has fulfilled the script and has confirmed that Spain will lead advanced economies' growth in 2024and the following exercise. The international organization has raised its GDP (gross domestic product) growth projection for this year by half a point to 2.4%, as it had already expected and in line with the government and the rest of the institutionsand leave it at 2.1% in 2025, after growing by 2.5% in 2023.
The upward revision of our country's forecasts is the most important in the update of the IMF's global economic outlook. According to their 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's, whose GDP will grow by 0.2% in 2024 and by 1.3% in 2025, after having contracted by three tenths last year. The projections for France and Italy remain at 0.9% and 0.7% for this year and show hardly any acceleration for next year.
The power of the foreign sector (for Tourism but also as a result of the export of other services), record job creation (which is boosting household consumption despite inflation) and the commitment to the recovery plan (which should boost business investment) are three of Spain's distinguishing factors compared to its peer economies.
But the IMF report, published on Tuesday, is not all good news. It also warns that sticky inflationwhich is mainly responsible for the positive consequences of the fact that economic growth does not reach all families and businesses.
“The rise in services prices is weighing on disinflation and complicating monetary policy normalization,” the IMF said. “As a result, the risk of higher inflation is increasing and a picture of longer-term interest rates is emerging amid rising trade tensions and policy uncertainty,” it added, from a global perspective.
The European Central Bank (ECB) will decide on official interest rates on Thursday, after an initial cut in June from 4.5% to 4.25%, following the most aggressive monetary austerity cycle in its history to combat inflation. The strategy aims to stifle households and businesses by making mortgages and loans more expensive, hurting demand and investment and reducing pressure on prices.
“However, the gradual cooling of labor markets, together with an expected decline in energy prices, should bring headline inflation back to target.” [en teoría el 2%] end of 2025 [en el conjunto de economías avanzadas]”, says the international organization.
In Spain, Headline inflation fell to 3.4% in June due to price drops at petrol stations – 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 has amounted to 19% in our country since 2021. A 'bite' in the wallet of workers that also does not exactly reflect the full cost of living, because the difficult access to housing is not included, largely due to the increases in ECB interest rates, but also for other reasons, such as tourist reasons rentals.
“Inflation data continue to reflect the ability of the Spanish economy to achieve the highest economic growth among the main eurozone countries compatible with moderating prices and maintaining measures to further reduce food prices,” they defended to the Ministry of Economy.
The IMF also speaks about “making growth compatible” with anti-inflation measures. “Policymakers face two tasks: persevering in restoring price stability and addressing the legacies of recent crises, including replenishing lost buffers and sustainably raising growth.”
The return of budgetary rules to the European Union (EU) is part of this ‘replacement of lost cushions’. To restore them, our country’s coalition government is obliged to keep the budget deficit (the imbalance between expenditure and revenue) below 3%, its target for this year, and to limit the growth of public expenditure, as it has announced. the same Tuesday after the Council of Ministers. By 2025, the goal is to reduce this to 2.5%, said First Vice President and Finance Minister María Jesús Montero.
“As budgetary room for manoeuvre shrinks, commitments must be met fiscal consolidation targets [de ajustes, o en definitiva recortes]”, the IMF concludes.
Economic growth and the reduction of the deficit will allow the ratio of public debt to GDP to be reduced below 100% by 2027, thus “restoring all the fiscal space” – according to Economy Minister Carlos Corpus – during the pandemic, at a time when the government had to make a historic effort in terms of public spending to mitigate the damage caused by the COVID shock.
“Spain will be the engine of growth for the major European economies,” Body said Tuesday at the press conference after the Council of Ministers. There are several vectors that strengthen this growth. First of all, creating jobs. With the aim of creating a million jobs in the coming years – more than 22 million people affiliated with social security – and of reducing the unemployment rate to a level of almost 8% in 2027 – a barrier below which full employment is considered in theory – ‘without imbalances’.”
Another major challenge is improving productivity, which is also predicted by the Minister of Economic Affairs, which is “compatible” with the reduction of the official working day, one of the coalition government’s commitments for this term. This is support for household consumption. Meanwhile, Corpus is also optimistic about business investment, supported by the recovery plan, which will reach its maximum impact on total GDP in 2024 and 2025.