The Spanish economy is starring in the great positive surprise of 2024. The International Monetary Fund (IMF) has revised upwards its growth forecasts for Spain by 0.5 points for the current year, to 2.9%, above the 2.7% calculated by the Government. That follows to another upward revision of the same caliber in June, so that between the spring and autumn meetings of the IMF, the improvement has been one point, the largest among all large economies, including emerging ones. The organization maintains its gross domestic product (GDP) growth forecast for 2025 at 2.1%. With this, in the whole of the two years, the Spanish economy is the one that shines the most among the large advanced economies of the world.
Spain’s good economic prospects contrast with the political tension that the country is experiencing. The Government has precarious parliamentary support that makes it difficult for it to carry out new reforms. The political climate is charged with harsh mutual attacks between the Government party and the opposition. The situation is clouded because the groups have taken their dispute to court with accusations of corruption. Meanwhile, the main economic indicators are oblivious to the political brawl.
The good news for the Spanish economy comes in the World Economic Outlook report from the Washington-based organization. The new edition arrives loaded with warnings about the threats that loom over the world economy, which was already advanced last week by the managing director of the IMF, Kristalina Georgieva. Just as she did, the organization claims ―almost― victory in the battle against inflation.
The Fund’s economists They insist on the risk derived from geopolitical conflicts and protectionism, But they also warn of the possibility that lower growth in China, restrictive monetary policies and volatility in financial markets could worsen the outlook. The IMF maintains its global growth forecast at 3.2% for this year, a rate that would be repeated in 2025, according to its forecasts (in this case it cuts its forecast by one tenth).
Spain’s improvement also occurs despite the fact that the regional environment is not very supportive. The German engine seized, the IMF lowers Eurozone growth forecasts one tenth for this year and three tenths for next, leaving them at 0.8% and 1.2%. Even so, growth is progressively accelerating. This year, thanks to improved exports, particularly of goods, and next year, favored by stronger domestic demand.
The IMF expects rising real wages to boost consumption and gradual easing of monetary policy to support investment, but persistent weakness in the manufacturing sector is hampering growth in countries such as Germany and Italy. “However, while Italian domestic demand is expected to benefit from the National Recovery and Resilience Plan funded by the European Union, Germany is suffering from the strains of fiscal consolidation and a sharp drop in real estate prices,” the agency indicates. .
The contrast with the growth of the United States ―where, despite everything, economic malaise spreads It’s brutal. The world’s leading economy will grow 2.8% this year, more than triple that of the eurozone, and 2.2% next year, almost double, with consumption and non-residential investment as the main drivers. The resistance of consumption is derived from job creation, salary increases and the wealth effect of a stock market at historical highs.
The IMF, however, warns in hypothetical scenarios of the drag on growth that a tariff war would entail (such as the one that the Republican presidential candidate, Donald Trump, could unleash). The IMF estimates that it would have a negative impact of 0.4 points in 2025 and 0.6 points in 2026. The effect would be somewhat cushioned by the extension of the tax cuts, but it would be even greater with strong restrictions on immigration (which Trump also especially advocates), which would subtract 0.5 points from GDP and add two tenths to inflation in 2025.
As for emerging countries, the outlook has worsened this year in China, with a reduction of two tenths in the forecasts, to 4.8%, while they remain the same in India (7%). The greatest contrast occurs in Latin America, where the Fund raises Brazil’s growth this year by 0.9 points, to 3%. while lowering Mexico’s again 0.7 points, at 1.5%. With 43.8%, Guyana will repeat this year as the fastest growing country in the world, thanks to oil, before slowing to 14.4% in 2025.
If emerging economies are left aside, Spain’s growth is in the leading pack of advanced countries. In the euro zone, only three small countries will grow more this year: Croatia (3.4%), Cyprus (3.3%) and Malta (5.0%). And in the world as a whole, the only other advanced economies with greater dynamism will be those of Hong Kong, Macau (which the Fund analyzes separately from the rest of China) and Taiwan.
On the price side, the IMF predicts that year-on-year inflation in Spain will be 1.9% at the end of this year (with an annual average of 2.8%) and 1.8% in December 2025 (average of 1.9%), compared to 2% in the euro zone. Per capita income will increase by 1.7% this year and 1% next year. The Achilles heel of the Spanish economy continues to be unemployment, where curiously the Fund barely varies its April forecasts despite the greater economic dynamism. The Fund foresees an unemployment rate of 11.6% for this year (same as what I predicted six months ago) and 11.2% for the next one (only one tenth lower). Unemployment remains higher in Spain than in any other major economy.
Shifts in economic policy
On a global scale, “the return of inflation close to the central banks’ objectives paves the way for a triple turn in economic policy,” says Pierre-Olivier Gourinchas, chief economist of the IMF, in search of the so-called soft landing. The first shift, already underway with interest rate cuts, is that of monetary policy. The central banks They have gone from fighting inflation to trying to avoid job losses or, worse still, a recession.
The second turn corresponds to fiscal policy. “After years of lax fiscal policy in many countries, the time has come to stabilize debt dynamics and rebuild much-needed fiscal buffers,” warns Gourinchas. The Fund estimates that Global public debt will reach $100 trillion this year. In some countries, such as the United States and China, current fiscal plans do not stabilize debt dynamics. In many others, although the first fiscal plans were promising after the pandemic and the cost of living crises, there are increasing signs of deviation, according to the IMF.
Even so, Gourinchas is careful not to make an open call for extreme austerity, so pernicious in the recovery from the financial crisis. “The path is narrow: delaying consolidation increases the risk of disorderly adjustments imposed by the market, while an excessively abrupt turn towards fiscal tightening could be counterproductive and harm economic activity,” says Gourinchas.
The third pillar is another IMF classic: structural reforms. The Fund admits that they are difficult to implement and that they frequently generate rejection. It especially calls for “ambitious domestic reforms that boost technology and innovation, improve competition and resource allocation, foster economic integration, and stimulate productive private investment.”
