Funcas raises its forecast for GDP in 2024 by half a point, to 3%, and improves that of 2025 to 2.1%

He warns that the tax benefits subtract almost three points of GDP from the collection and believes that there is “margin for action” there

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The Savings Bank Foundation (Funcas) has raised its estimate for the growth of the Spanish Gross Domestic Product (GDP) by half a point this year 2024 to 3%, while projecting an economic evolution rate of 2.1% in 2025, compared to 1.8% of the previous forecast.

The general director of Funcas, Carlos Ocaña, and the director of International Economic and Economic Affairs of Funcas, Raymond Torres, presented the economic and fiscal forecasts for Spain 2024-2025 at a press conference.

Behind this sharp upward revision of the forecasts for 2024 are factors such as a greater contribution from national demand, particularly public consumption, as well as, to a lesser extent, better dynamism in private consumption and external demand.

Regarding the composition of growth, national demand will contribute 2.4 points and the foreign sector, six tenths. In particular, public consumption and exports of goods and services will remain the main drivers of growth, with advances in both cases exceeding 3%.

For its part, although it has also been adjusted upwards, private sector demand will grow at a lower rate than GDP. Thus, private consumption will increase by 2.7%, two points below the expected growth in household disposable income in real terms. Gross fixed capital formation, however, maintains its path of relative weakness.

Regarding the evolution in 2025, Raymond Torres explained that the perspective of a recovery of the European economy and the decrease in interest rates point to an improvement in the forecasts for GDP in 2025, from the 1.8% of the projection from July to the current 2.1%.

Although activity indicators remain in expansionary territory, Ocaña has warned that it is “very important” that some components of the economy’s growth improve, such as business investment and private consumption.

“It is necessary to stimulate investment in equipment and housing, and that requires, beyond reasonable tax treatment, being firm and better regulation,” stressed the general director of Funcas.

550,000 NET JOBS UNTIL THE END OF 2025

Regarding inflation, Funcas’ estimate is that the annual average CPI for this year will be 2.7% and the consumption deflator rate will be 3.2%. By 2025, a private consumption deflator is estimated to slow to 2.4% and a CPI of around 1.8% on an annual average.

The economic situation and Funcas’ forecasts are consistent with an additional decrease in the unemployment rate, which would gradually drop to 10.5% by the end of next year. “This also incorporates an additional plus of entry of foreign labor force,” explained Torres.

According to the Foundation’s forecasts, between the second quarter of this year (latest data available) and the end of 2025, close to 550,000 net jobs will be created in EPA terms, a figure lower than the recent period (between the end of 2021 and In the second quarter of this year, more than one million net jobs were created).

THE HOUSEHOLD SAVINGS RATE WILL FALL TO 12%

In this context, Ocaña explained that households have not only been able to consume more this year 2024, but they have also accumulated more liquidity, more savings, with a rate that is currently around 14%, “a very high level “.

However, Funcas estimates that this rate will be reduced from 13.7% in 2024 to 12% in 2025, despite the fact that the gain in purchasing power of salaries will already be much lower, because this year 2024 this revaluation of salaries It is fundamentally due to specific phenomena as a consequence of inflation.

ADJUSTMENT OF 8,000 MILLION AND MARGIN ON TAXES

Funcas’ forecasts regarding the public deficit hardly change. According to the Foundation, the budget deviation would be 3.1% of GDP this year, compared to the 3% estimated by the Government, and 3% in 2025, above the 2.5% expected by the Executive. Regarding public debt, Funcas estimates that it will fall from 102.3% of GDP in 2024 to 101% in 2025.

THEY QUESTION THE REDUCTION OF THE DEFICIT OF THE FISCAL PLAN

Raymond Torres has pointed out that “without the details of adjustment measures, and with a purely trend projection, public accounts will improve less than what the fiscal plan reflects”, in reference to the fiscal structural plan sent last week by the Government. to Brussels.

In any case, Funcas’ estimates are that Spain requires an adjustment of half a point of GDP, which can come from the income or expenditure side, which is about 8,000 million.

According to Ocaña, Spain continues to have “a lot of room” for action regarding taxes. “Not about raising taxes, the taxes paid in Spain are at the European level,” he clarified.

What the general director of Funcas is referring to is that there is room for improvement in all the tax benefits that exist in Spain and that they reach almost three points of GDP that are lost in collection. “We have a tax system that is very generous in bonuses, deductions, and differentiated treatment for different groups of taxpayers,” he warned.

In this sense, Ocaña has explained that, just as the tax levels are not so far from those of France or Germany, Spain registers a much greater volume of these tax benefits than other surrounding countries.

RISKS

The main risk to the fulfillment of these forecasts comes from the geopolitical sphere, especially in the event of a worsening of the crisis in the Middle East. The situation of some of the main community partners is also worrying, with a German economy that could take longer to recover than expected, and financial markets attentive to the fiscal situation in France.

In this regard, the persistence of a high public deficit poses a risk to fiscal sustainability and the room for maneuver of Spanish economic policy in the face of possible disturbances.

In the long term, Funcas insists on the concern generated by the stagnation of business investment. A chronic investment deficit raises doubts about the prospects for recovery of productivity, the Achilles heel of the Spanish economy. Likewise, the weak performance of residential investment could constrain labor mobility, the entry of foreign workers and potential growth.