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The devastation caused by the floods could subtract between 10 and 20 basis points from Spain’s GDP in Q4 2024. This estimate is subject to a high degree of uncertainty and assumes a significant impact on Valencia’s primary sector, a moderate impact on its industry and a milder impact on trade. The estimate for 2025 will depend largely on the scale of the investments allocated to reconstruction and the replenishment of the capital destroyed in the floods, as well as on the support measures that are implemented.
Following all these events, 2024 closed with gains in equities and with the dollar as the most strengthened currency, but with a significant increase in sovereign rates in the anticipation of higher inflation in the US, the unknowns surrounding the future of global geopolitics and the uncertainty about exactly how much more monetary policy will be eased.
Once domestic demand reflects the effects of the interest rate hikes, the hardest part of the central banks’ work will have been largely completed. The problem is that the markets are already – perhaps precipitously – pricing in an imminent shift in monetary policy.
The savings rate of Spanish households remains very high, but it can vary substantially depending on income level, so it is important to analyse how it is distributed according to income level and age. We dedicate this article to such an analysis, using anonymised internal data and big data techniques.
Between the end of September and the end of February, the US dollar depreciated by 6% in effective nominal terms and by 10% against the euro, trading at close to 1.07, a level not seen for almost a year. We explore what lies behind this change of trend and whether it is likely to continue.
In the coming years, the paths of interest rates and nominal GDP growth will create an environment in which it will not be so easy to regain fiscal space without a proactive effort by governments.
In the US, two major economic investment and modernisation plans have been launched in recent years which represent a very different model from the European one, with a more protectionist approach. The transformative efforts in energy and technology did not arise from the need to boost the economy after COVID, as was the case in the euro area with the European NGEU funds, but rather from the need to strengthen the US’ autonomy and strategic position.
The 2021 labour reform has managed to significantly reduce the temporary employment rate in Spain: from an average of 29.7% in the period 2014-2019, it has fallen to 12.7% in 2024. This reduction has occurred across the various sectors, age groups and regions, and it has led to greater employment stability, although job turnover has increased and the number of contracts registered has decreased.
The indicators that have been published during the opening months of the year paint a picture of a buoyant Spanish economy in Q1 2025, albeit with a slightly less vigorous growth rate than in the previous quarter.
Following a record-breaking 2022, the ECB’s interest rate hikes, coupled with the slower growth in real household disposable income, are expected to weaken the demand for housing.
The NGEU funds and the national investment programmes in Germany and France are the result of a long process of changes in the big economic blocs, accelerated by COVID and the war in Ukraine. These efforts seek to redefine and adapt production models to the energy transition and digitalisation in a context of uncertainty and new geopolitical dynamics.
In these first few months of the year, Spain’s GDP has continued to grow at a significant rate, although the gap between the services and industrial sectors persists. Job creation is gaining traction, while inflation continues to decline, driven by the fall in energy prices. The trade deficit continued to increase in February and residential activity in Spain has had the best start to the year since 2007.
The savings of Spaniards went from 5,800 euros per household in 2023 to more than 7,000 in 2024. Why has the household savings rate increased and what do we expect for 2025?
The strong start to the year introduces some upward bias into the growth forecasts for 2023. Nevertheless, the risk that the second half of the year could be weaker, as the aggressive rate hikes are finally transmitted to the economy, may limit the growth expected for 2024.
The financial markets broadly stabilised during the month of April, as investors' radar moved away from the financial turmoil of March to focus on the growth and inflation outlook, with the publication of GDP data for Q1 2023 and the corporate earnings season.
To date, the investments already approved as part of the Portuguese Recovery and Resilience Plan (RRP) amount to 12,249 million euros, compared to total planned investments of 16,644 million euros. This represents an approval rate of 74%, which in principle looks promising in terms of getting the most out of the NGEU funds that Portugal will receive up until 2026.