Bank of Spain trims growth outlook for 2024, 2025

By Jesús Aguado

MADRID (Reuters) -The Bank of Spain on Tuesday lowered the country’s economic growth outlook for 2024 and 2025, citing slowing private consumption even as it expected inflation to ebb more than predicted earlier.

This year, growth will have slowed down to 2.4% from 5.8% in 2022, it said in its quarterly outlook, putting fourth-quarter growth at 0.3% from the preceding three months.

Next year, the economy should expand just 1.6%, below the institution’s previous forecast of 1.8%.

While it was expected to pick up steam in 2025 and grow 1.9%, that was also short of the 2% predicted earlier due to “a less favourable outlook for future developments in household consumption”, which the bank attributed in part to a pricier and more difficult access to consumer credit.

Consumption would still remain the main driver of growth in the medium term, it added.

For 2026, it expects the economy to grow 1.7%.

The bulk of the positive economic impact from EU relief funds is now expected to land in 2025-2026 and not in 2024 as previously envisaged.

Lower energy costs should ease Spain’s EU-harmonised consumer inflation to 3.4% this year, below the previous estimate of 3.6%, it said, and it projected prices would rise 3.3% next year, a full percentage point lower than in its previous forecast, and by 2% in 2025.

The potential extension by the government of value-added tax reductions on electricity and gas bills “would have a negative impact in 2024 of 3 billion euros in deficit but a positive effect of two decimal points in GDP,” Bank of Spain chief economist Angel Gavilan said.

The Bank of Spain forecast the unemployment rate would continue falling, albeit at lower pace than in previous years. It should drop to 12.1% this year from 12.9% in 2022, and gradually decline to 11.3% in 2026.

Separately on Tuesday, the government increased aid for unemployed people who have exhausted their unemployment benefits. They can now request 570 euros a month in support instead of the previous 480 euros.

(Reporting by Jesús Aguado; Additional reporting by Emma Pinedo; Editing by Andrei Khalip and Hugh Lawson)