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2023 has been a year of economic growth. What about 2024?


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The Conversation

Álvaro Bañón Irujo

Professor of Financial Management and Investments, University of Navarra

Economists have the virtue of describing very well what has happened, and why, but we rarely get our forecasts right. Knowing this, I will try to summarize 2023 from an economic point of view, and be so adventurous as to launch some forecasts for 2024.

The context

The war between Russia and Ukraine has continued to shape the dynamics of the global Economics in 2023. Its onset in February 2022 accentuated already existing inflationary tensions with rises in the price of energy and other commodities. That led central banks to a series of aggressive interest rate hikes to combat price increases. Tough but necessary medicine.

Although the war continues, commodity and energy prices moderated, and even fell, due to supply and demand effects. This, coupled with a great year for tourism and private consumption, has helped countries such as Spain to have a better than expected 2023, especially during its first part.

Regarding economic growth, different Departments of programs of study forecast that Spain will end 2023 with a GDP growth of 2.3%, which makes it the EU country where Economics has grown the most. The reasons seem to be clear: the tourism industry has broken its post-pandemic records and domestic consumption (what Spaniards spend) has continued to push upwards, especially in the summer quarter.

In contrast, for example, Germany is still heavily affected by the consequences of the war in Ukraine and will therefore decrease by 0.3 %, and the EU as a whole will only grow by 0.7 %.

In the case of Spain, what is worrying is that growth has gone from strength to weakness. It has gone from robust growth of 0.6 % and 0.4 % in the first two quarters to more modest growth in the third quarter (0.3 %) and foreseeably also in the fourth quarter of 2023.

Inertia is not positive.

The data

In 2023, price growth in Spain will be 3.6%, considerably less than the EU's average (6.5%) and than in countries such as Germany, France and Italy, where inflation will exceed 5%. So in this other section the Spanish performance has also been better than that of the surrounding countries.

As for employment, another indicator core topic, the news has also been good for Spain. It has created employment to bring the unemployment rate down to 11.84 %, a decrease of about 1 % compared to the previous year.

The bad news in this area is threefold:

  1. The creation of employment has slowed down in the third quarter and, foreseeably, also in the fourth quarter.

  2. The employment created is of poorer quality.

  3. A very large percentage of the employment created is public.

In the last section to be analyzed, deficit and debt, the news is not so positive. The general government as a whole continues to spend more than it takes in, specifically 4.15% more. Public debt as a percentage of GDP will be 109.9% at the end of this year. Spain owes more than one year of its GDP.

Why have growth and employment been slowing down?

Mainly because of the European Central Bank's interest rate hikes. These monetary policy measures are effective in combating inflation but, if not applied carefully, they can kill the patient. Or, in other words, they can cause a deep recession.

The forecasts

Although in the field of forecasts there are multiple variables, especially geopolitical ones, which can change all forecasts, the Bank of Spain and other Spanish institutions estimate that economic growth will be very modest in 2024, varying between 1.4 % and 1.8 %. This is basically due to the fact that domestic consumption will suffer from the persistence of high interest rates. The foreign sector is not expected to be able to compensate for this rise (our customers are suffering, let us remember), so growth will be lower.

As for inflation, it is expected to increase to 3.8% due to the expected rise (as reflected in the futures markets) in oil prices, the disappearance of public transport subsidies and the recovery of the subject VAT on foodstuffs.

With such meager growth, the creation of employment is forecast to be modest and the drop in unemployment would be, at best, 4 tenths of a percentage point, corresponding mainly to the services sector, mainly tourism.

Regarding debt and deficit, the EU announces its return to a certain fiscal discipline and Spain will have to move towards trying to spend what it earns, with a reduction of the deficit to 3.6%.


In the short term, the eruption of new geopolitical tensions (Middle East, Ukraine) could trigger new rises in energy markets and make trade exchanges more difficult, which could lead to the worst-case scenario: stagflation (inflation without growth). This would prevent the ECB from lowering interest rates and would be a very serious problem for growth.

In the medium term, the tendency to spend more than one takes in implies dependence on the markets to finance its deficit, and this at some point may flare up again. Especially if the EU returns to the fiscal discipline . Then there would be talk again of the risk premium, the protagonist of the European economic data of 2011 and 2012.

The risk premium is how much more is asked of a country to lend it money, if it is perceived as a risky asset. If, for example, Germany is lent at 1% and Spain at 3%, the Spanish risk premium would be 2%.

This imbalance is, in my opinion, the main risk of the Spanish Economics . Moreover, it conditions Spain's economic sovereignty by depending on the markets for daily financing.