The current government has aligned with the trend of GDP revisions echoed by major agencies and research services in recent months. In the budget plan submitted to the European Commission this Sunday, the growth forecast for the year was nudged higher from 2.1% to 2.4%, while the projection for the following years was trimmed from 2.4% to 2.0%.
The new macroeconomic framework presents a 2% forecast for 2024 that sits a notch above the International Monetary Fund’s current estimate of 1.7%, the Bank of Spain’s 1.8%, and the European Commission’s 1.9%.
In the document sent to Brussels, the government explains that the euro area’s slower growth is the primary driver of the 2024 revision, while domestic consumption and investment are anticipated to strengthen growth. The Ministry of Economy foresees a pickup in consumption and investment through 2024, supported by the Recovery Plan, the momentum in the labor market, and the continued financial solvency of both households and firms, whose debt levels are at their lowest since 2002 according to the latest quarterly financial accounts.
The administration projects that the labor market will remain dynamic: more than 700,000 full-time jobs are expected to be created between 2023 and 2024, and the unemployment rate should stay under 11 percent, with the active population around 24 million. Furthermore, the macroeconomic table includes a forecast that wages per employee will rise faster than the Consumer Price Index, helping workers regain purchasing power over this period.
In the document addressed to Brussels, the government reiterates that the subdued growth in the euro area is the main factor behind the 2024 GDP downgrade, even as a stronger pace of consumption and investment supports overall growth. The Ministry of Economy notes that the macroeconomic picture also reflects geopolitical tensions and higher ECB rates. Nevertheless, the Spanish economy is expected to outpace the euro zone on average, with IMF projections indicating a growth rate near 1.2% for the period.
On a positive note, the plan points to faster consumption and investment growth by 2024, driven by the Recovery Plan, a robust labor market, and sound financial health among households and businesses, whose indebtedness has fallen to levels not seen since 2002, according to the second-quarter financial accounts.
For now, there will be no extension in the anti-inflation measures.
Submitting the Budget Plan for public administrations to the European Commission before October 15 remains a requirement for all EU members. The document should outline the main figures for the coming year, including the macroeconomic statement, revenue and expenditure projections, deficit estimates, and the anticipated impact of new measures.
However, the current political climate, with a government awaiting a new investment debate, limited the scope of the document this time. The plan is described as an inert financial scenario, meaning that any measures or expansions in economic and budget policy that could be approved for 2024 after a new government formation are not included.
Regarding anti-inflation measures set to expire on December 31, such as VAT reductions on food and energy, the Budget Plan assumes they will end as scheduled. The possibility that a future government might extend some of these provisions is not ruled out.
Public pensions and salaries
The 2024 Budget Plan also includes measures mandated by law or already agreed upon. It calls for pension revaluations in line with the December 2022 to November 2023 CPI, projected to be around 4%, and raises for public sector salaries in accordance with the agreements reached with public service unions.