These are the 6 biggest threats to the Spanish economy in 2024

2024 will begin with none of the major threats that loomed over the economy in 2023.

It's not so clear-cut: even if some, like the gas crisis in winter, have disappeared (for now) New threats have emergedSuch as Israel's war in Gaza or the risk of Donald Trump winning back the White House in the US elections in November 2024.

The EU (and Spain, by extension) has experienced 2 crises in 3 years, Covid-19 and the war in Ukraine, and has avoided a third, the banking storm after bankruptcy. SVP There is no crystal ball to predict what will happen in 2024, but problems may arise on several fronts on the horizon.

In Business Insider Spain We asked the experts what they are Major threats to the economy in 2024:

1. Debt, a ticking bomb

ok This is not new. The threat of Spain's public debt has been a historical problem, a Peter and the Wolf (Debt comes in…), a hot potato to pass from government to government at the risk of exploding. That is the problem; If things go badly, it can explode.

If the debt was 95.5% of Spain's GDP in 2019, it will rise to 125.3% by March 2021. It currently stands at 110% of GDP, and all indications are that it will remain more or less at those levels in the foreseeable future.

But in 2024 there may be more debt A real danger to the economy. “Definitely, we are moving into a more complex environment. The situation for granting credit is less favorable now than in the last decade,” explains Salvador Jimenez, analyst at Analystas Financieros Internationales (Afi).

This added to debt levels at historic highs, without a clear fiscal consolidation plan, and the recovery of the European Commission's stability agreement, which requires adjustments from European countries to budgets that are still in their infancy. Treasury of the extension of certain anti-crisis measures; set up A veritable Molotov cocktail for 2024.

2. If Germany sneezes…does Europe catch a cold?

An icy wind is blowing in Germany, which means recession. The Bundesbank has not stopped worsening its economic forecasts: close with 2023 Sudden stop of the German engine, its GDP will shrink by 0.1%. Although the real cut in forecasts comes in 2024, when the Bundesbank cuts it from expecting 1.2% growth to 0.4%.

It is well known that when Germany sneezes, the rest of Europe catches a cold. The weight of the German economy and its close ties with its European neighbors during a radical event shockedThe rest of Europe could be dragged into recession.

In recent weeks, the German Constitutional Court declared Germany's budget unconstitutional. A program full of revisions It returns to its classic austerity and, once it starts using, may prolong the recession.

Spain is in Europe. 90% of the Spanish economic cycle is explained by the European economic cycle, and Germany is the largest economy in Europe. This is only 15% of the European economy. If the recession persists in Germany, it is only a matter of time before it hits Spain.

“The low economic growth expected for the Eurozone (growth forecast for 2024 is 0.7%, according to CaixaBank research compared to 1.4% potential growth according to the IMF) will have a negative effect on our economy,” they warn from CaixaBank. Research.

3. Intensification of Israel's war in Gaza

Since the attacks began in October, Israel's war in Gaza has turned into a humanitarian disasterAnd its increase could lead to a new global crisis with disastrous consequences for the economy.

The IMF had already warned months ago: although its impact is still difficult to assess, the conflict creates “a new cloud on the world economy's not-so-sunny horizon”.

“Geopolitical conflicts are likely to further strain energy, raw materials and global supply chain markets,” they point out from CaixaBank research.

A war could break out between Israel and Gaza A death blow to the global economy It is still being dragged down by the effects of the pandemic and the war in Ukraine, rising energy prices at a time when inflation is starting to fall and central banks are preparing to ease their monetary policy.

4. Unexpected spike in inflation, interest rates hit your pocket book

Inflation seems to be under control now. In November, prices in the eurozone rose 2.4%, which was very close to the European Central Bank's (ECB) monetary stability objective of 2%. But you don't have to believe yourself. The ECB, in fact, hasn't done so, which is why it hasn't started cutting interest rates yet.

The ECB expects inflation to deliver a negative surprise in December, so it's best to tread carefully rather than rush into rate cuts. The ECB expects the last phase of inflation to be tough. In fact, Inflation is likely to rise in DecemberFelix Fether, economist at Abron confirms.

I can do it step effect, but if, for example, the conflict in Gaza escalates and leads to a new energy crisis, as has already happened in the war in Ukraine. This rise in prices will coincide with the worst part of interest rates, when the rising effect will lose all its weight on the economy.

“While rates may be lower in 2024 than in 2023, remember that the impact of a rate hike takes longer to ripple through the economy. Typically, the maximum impact occurs one to two years after the hike. These delays explain why, on average, we expect lower rates in 2024 than in 2023.” expect, The impact of interest rates on GDP growth will be significantly negative in 2024“, they explain from CaixaBank research.

Worsening inflationary pressures in 2024 would be a double whammy for households and firms, and could lead the ECB to raise rates again. A vicious circle that could drag down the European economy A recession and disrupting financial markets.

5. The return of Trump

Although America is on the other side of the pond, everything that happens there spills over into Europe, especially if you have a blonde quiff and orange skin. The US presidential election will be held in November 2024, and former President Donald Trump could be re-elected to the White House.

“Trump is likely to return to the US presidencyAnd with the tone of the economic policy of the last legislature,” explain David Dinajero and Maria Romero Melendez, analysts of the International Financial Analysts (Afi).

Trump's re-election, Romero and DiNajero point out, would translate into more protectionism (its impact on inflation is always negative, i.e., the probability of seeing higher inflation), the risk of a trade war with China and its impact on global trade, an increase in tariffs on European products, and the possibility of Ukraine losing US support to Russia. Unbalancing the balance of support conflict, among others.

And, Leopoldo Torralba, senior economist at Organo, says Trump's victory could have economic consequences, “such as a certain rise in US sovereign bond interest rates by maintaining more volatility in economic policies and deficits.” Public”.

6. The wave of European populism

A ghost doesn't roam Europe… but it can do it again anytime: The ghost of populism. On June 9, 2024, elections to the European Parliament will take place, and this event will be a referendum on where European citizens breathe.

“These elections will act as a thermometer for the progress of the anti-European far-right in the member states,” confirm Dinajero and Romero.

The problem is that the progress of anti-European parties at a crucial moment for the European Union, ongoing battles with major challenges such as European financial management, energy transition, digital transformation or defense spending and European positioning, will become a real threat to the future of the Union, especially on the other side of the Atlantic, if Trump comes to power.