However, in the coming quarters this trend may change and negatively affect the contribution of external demand to GDP. After a double-digit increase in 2024, Non-resident consumption in real terms could stagnate in 2025. According to the observatory, the capacity used in the high season months is limited; especially considering that the negative externalities of the development of the sector are having significant costs for a large part of the population. “Elements such as congestion, pollution or the increase in the cost of living (mainly, housing) are producing a change in sentiment that will have consequences on public policies,” he points out. “This will prevent a greater number of tourist places from reaching the market. If demand growth continues, it is increasingly likely that this will lead to an increase in prices, higher taxes or regulation that restricts supply.”
Improve productivity per hour worked
BBVA Research confirms an increase in productive efficiency in Spain compared to the eurozone in the last four years. In particular, Productivity per hour in Spain has grown by 3.2% in accumulated terms, while in the EMU it has grown by 0.9%. The main contribution to this evolution comes from the increase in productive efficiency within each sector rather than from a restructuring of employment towards more efficient activities or changes in the relative working day. In this sense, financial activities and the manufacturing industry explain a good part of the increase in labor productivity in Spain since 2020 as they are the only sectors that have improved their productive efficiency and increased their weight in employment. Improvements in productivity have also occurred in the services sector and, more specifically, in commerce, transport, hospitality and professional activities. However, they are still less efficient activities on average.
Growth accelerates in the eurozone
BBVA Research perceives a acceleration of growth in the eurozone over the coming months, thanks to greater certainty about energy costs and the recovery of the population’s purchasing power. On the energy side, the price of electricity is falling thanks to relatively high gas inventory levels. Likewise, the price of oil does not, for the moment, put pressure on inflation prospects, which could end up at 2.5% in Europe in 2024 and 2% in 2025. The improvement that this will bring to income available from households, together with the expectation of lower financial burdens in the future, should support the increase in family spending.
In parallel, exports, especially in Germany, show signs of recovery. There are beginning to be signs of an improvement in external demand, as expectations about orders improve and the level of inventories is reduced.
“It is expected that, if the scenario of downward inflation and moderate acceleration of activity is confirmed, there will be rate reductions in September and December similar to those in June”
Lower interest rates in the eurozone
BBVA Research estimates that The monetary policy interest rate in the eurozone could fall 75 basis points in 2024 as a whole and another 100 basis points the following year. “It is expected that, if the scenario of downward inflation and moderate acceleration of activity predicted by BBVA Research for the eurozone is confirmed, there will be rate reductions in September and December similar to those in June,” the economists point out. “In an environment of ample liquidity and competition such as that prevailing in the Spanish banking sector, this may mean an improvement in financing conditions for companies and families that supports the growth of demand going forward.”
Fiscal policy may be somewhat more expansive than expected in 2024
The public deficit closed 2023 at 3.7% of GDP, three tenths less than expected and one point less than in 2022. Public spending behaved in line with expectations. The recovery of tax revenues – particularly income taxes – and social contributions exceeded expectations, which offset the worse performance of taxes on production, affected by the tax cuts.
This evolution increases the probability that the imbalance in public accounts is below 3% of GDP without additional fiscal policy measures having to be takenaccording to BBVA Research.
In parallel, investment in other buildings and constructions begins to show acceleration in the execution of funds associated with the Recovery, Transformation and Resilience Plan (PRTR). This component of domestic demand is expected to increase by 6.9%, on average, during 2024, after having increased by 4.4% in 2023. “It is very likely that throughout 2024, the data will finally show , the consolidation of the impact of the funds on economic activity,” point out BBVA economists.
“It is very likely that throughout 2024, the data will finally show the consolidation of the impact of European funds on economic activity”
Moderation of growth in the coming quarters
BBVA Research warns that GDP growth could moderate in the coming quarters, affected by a negative contribution from external demand, given the restrictions on growth in the tourism sector and the increase in imports. “The change in the composition of sales abroad, with the lower contribution of service exports, will lead to a more intensive growth model in the use of inputs from other countries,” the report highlights.
Likewise, BBVA’s research service perceives that there has been an increase in family income that is not being transferred proportionally to spending. One explanation for the increase in savings could be the exhaustion of the boost that the end of the restrictions derived from the pandemic brought to services.
BBVA’s research service perceives that there has been an increase in family income that is not being transferred proportionally to spending
Investment stagnation
Finally, the stagnation of investment represents a bottleneck for improving productivity and competitiveness. The acquisition of transportation equipment and investment in housing remain almost 20% and 10%, respectively, below 2019 levels. Likewise, the sensitivity of investment to the expansionary cycle and, in particular, to funds linked The PRTR has been lower than expected. Investment is still 1% below pre-pandemic levels, while GDP is already almost 4% above. “Among the factors that could be reducing the multiplier effect of the funds may be their concentration on the purchase of imported goods, the high level of unused capacity in some sectors or the lack of planning given the need to spend the funds as quickly as possible.” ”.
Another factor that can hamper activity is the fiscal adjustment necessary to comply with fiscal rules and that will affect domestic demand. This adjustment will occur, in the best of cases, through an increase in indirect taxes, and in the worst, sacrificing productive spending, basic services or with inefficient tax increases. “The lack of consensus around economic policy is a source of uncertainty going forward, which hinders private investment”, point out the economists. “Cross-cutting agreements would be desirable that would provide certainty about fiscal adjustment, the provision of essential public services, the protection of the most vulnerable, the reduction of the unemployment rate, immigration, the double energy and digital transition, or the increase in productivity”.
