European Commission Adjusts Growth Forecasts for Spain Amid Economic Challenges
The European Commission has updated its forecast for the growth of the Spanish economy, projecting an increase of 3% for this year, a significant revision from its previous estimate in May. The Commission also maintains its prediction that Spain's deficit will decrease to 3% in 2024. However, this assessment does not account for the economic damage caused by the DANA (a weather phenomenon affecting southern Spain) and includes cautions about potential challenges in meeting deficit targets starting in 2025.
The European executive's positive forecast improves upon the government's previous growth prediction of 2.7%. This positions Spain as the leading economy in the EU in terms of growth, alongside Poland, and outpaces both the eurozone's forecast of 0.8% and the EU’s total growth of 0.9%. Despite this optimistic outlook, the Commission has noted that it does not factor in the potential negative impacts of recent floods and torrential rains which could have significant repercussions on the infrastructure and economic fabric of the affected regions.
Brussels has also warned that disruptions in economic activity may reignite inflationary pressures, especially for food products. For the upcoming year, Spain is expected to end with a 3% deficit in 2024 – a prediction that facilitated the government’s evasion of a case of excessive deficit even with a projected 3.5% deficit for 2023.
Nevertheless, the Commission raises alarms about Spain's commitments to deficit reductions in its multiannual adjustment plan. It predicts a deficit of 2.6% for 2025, slightly above the originally planned 2.5% and further estimates a 2.7% figure for 2026, exceeding the 2.1% commitment made in March.
Additionally, the autumn economic forecasts highlight a gradual decrease in the debt-to-GDP ratio, which is expected to decline from 102.3% in 2024 to 101.3% in 2025, and continue its fall to 101.1% in 2026. Inflation is also projected to decrease from 2.8% to 2.2% in 2025 and further down to 2% in 2026, a decrease from the previous spring forecast.
On a more negative note, Spain is expected to maintain the highest unemployment rate in the EU, projected at 11.5% for 2024, compared to the eurozone's average of 6.5% and the EU’s overall 6.1%. However, employment figures show a positive trend with an expected growth of 2.3% in 2024, followed by a decline to 2.1% in 2025.
In summary, while the European Commission's revised growth forecast displays a robust outlook for Spain's economy, underlying challenges due to natural disasters and potential inflationary pressures could complicate the country's path to fiscal stability.
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