By Inti Landauro
MADRID (Reuters) – Spain’s central bank on Tuesday raised this year’s economic growth estimate despite the negative impact of catastrophic floods in October and a slowdown in the wider euro zone, also upping the forecast for 2025 thanks to reconstruction spending.
The bank now expects gross domestic product to expand 3.1% in 2024 rather than 2.8% estimated in September, in an acceleration from last year’s 2.5%. It is the third time this year that the bank raises its growth forecast from the original 1.9%.
In the fourth quarter alone, GDP should grow 0.6%-0.7% from the previous quarter, when the expansion was 0.8%, slowing down mainly because of the negative impact of the floods that killed more than 220 people in eastern Spain in late October and washed away homes, roads and other infrastructure.
But the bank said billions of euros in reconstruction spending announced by the government, as well as a carry-over effect from higher growth in 2024, should help the economy grow 2.5% next year, above its previous forecast of 2.2%.
The spending to rebuild the area around Valencia is likely to cost the equivalent to 0.5% of GDP, mainly this year, when the central bank expects a higher budget deficit of 3.4% than 3.3% forecast earlier.
Next year, however, it sees the budget gap narrowing to 2.9%, dropping just below the European Union’s 3% threshold one year earlier than previously envisaged.
The Spanish economy’s good health, buoyed by tourism and to a lesser extent manufacturing, contrasts with the performance of its euro zone peers.
France, which is dogged by months of political crises, is expected to grow a paltry 1.1% this year and 0.9% next, its central bank said on Monday, while the Italian central bank expects an even slower 0.7% growth both this year and next.
Germany, the euro zone’s largest economy is expected to contract for a second year in a row.
As a result of the strong economic performance, the central bank expects the unemployment rate to gradually fall to under 10% by 2027, a level not seen since 2008, from the current 11.21%.
(Reporting by Inti Landauro, editing by Andrei Khalip)
