Warns that growth of 1.5% next year will be “insufficient” to reduce the unemployment rate
MADRID, 25 Jul. (EUROPA PRESS) –
The Institute of Economic Studies (IEE) forecasts growth in the Gross Domestic Product (GDP) of 2.2% in 2023, although with a “notable slowdown” in activity in the second half of the year, and projects a boost to the economy of 1.5% in 2024.
This is reflected in the semi-annual report on the economic situation entitled ‘Political uncertainty increases the risk of a slowdown in the Spanish economy’, which was presented at a press conference this Tuesday by the president of the Institute of Economic Studies, Íñigo Fernández de Mesa, and its general director, Gregorio Izquierdo.
The IEE report includes a first assessment of the situation in the country after the general elections were held on July 23, and warns that the new political scenario increases uncertainty and the risk of a slowdown in the Spanish economy.
According to the organization, the increase in uncertainty negatively influences decisions and activity, which, if sustained over time, could lead to an additional brake on investment projects and job creation.
“Political stability is going to be very important so that the structural reforms we need can take place,” explains the president of the IEE, Íñigo Fernández de Mesa.
Fernández de Mesa has urged “that extremes be avoided” in the face of the formation of the future Government and has demanded that it be an Executive that defends the company for the “good economic development of the country”.
As reported by the IEE, the company is currently in a “very weakened” situation, due to the “very significant” increase in all kinds of costs, from labor costs to tax costs and financial costs.
As an example, Fernández de Mesa has warned that in the housing sector a decrease in sales is beginning to be noticed, motivated “by the legislation and the rise in interest rates.” “It is one of the sectors that is in clear risk of decline,” he warned.
For this reason, the IEE has stressed that the future Government must avoid “confrontation” with the business world, taking into account a situation in which Spain is going to suffer a second part of the year “much more complicated than what has been the first part of the year”.
An added setback for the Spanish economy, according to the IEE, is the increase in difficulties in undertaking the inevitable budgetary consolidation that will be required from Europe, once the new fiscal rules are agreed.
In fact, the IEE has indicated that the General State Budgets for 2024 will be able to be approved, in the best of cases, with a long delay, and if additional tax increases are incorporated again, the expectations and mistrust of the agents “could worsen even more”.
Similarly, the organization has warned that the absence of clear majorities in the Government makes it difficult to implement the structural reforms necessary to increase the competitiveness, productivity and potential growth of the Spanish economy.
In its report, the IEE wanted to draw attention to the impact of the rate hike on the income of economic agents, as well as other vulnerability factors of the Spanish economy. These factors introduce a “downward bias” to economic growth, which will slow down significantly in the second part of the year and show more moderate growth in 2024.
Regarding the labor market, IEE forecasts point to an increase in employment, which it estimates to be around 2% for 2023, while in 2024 said rate could be 1.1%. In this sense, the unemployment rate would remain relatively stable in both years (12.4% in 2023 and 12.2% in 2024).
The organization has highlighted that the labor market has shown a positive behavior in the first months of the year. Although, the IEE has qualified that in recent months it is losing dynamism and it is expected that in the second half of the year the slowdown in job creation will continue.
“If this situation continues in 2024, the variations in employment will be insufficient to significantly reduce the high unemployment rate in the country,” he warned.
Regarding inflation, the IEE forecasts that the general CPI could drop below 4%, on average, this year, and approach around 3% in 2024.
On the other hand, the underlying CPI could exceed, on average for the year, 6% in 2023, to converge to the level of general inflation (3%) in 2024.
The IEE projections on the deficit suggest that the balance of public accounts in 2023 could be 4.3% of GDP and, if there is no change in the direction of budgetary and fiscal policy, a public deficit of 3.8% is expected in 2024, far from the 3% projected by the current acting Executive of Pedro Sánchez.
It must be borne in mind that, foreseeably, the new fiscal policy rules will come into force by 2024, which means that Spain would have to make a greater effort to reduce the budget balance than other European countries to drop below 3%.
