CaixaBank estimates that Spanish potential GDP will drop to 1.3% in 2030 and urges the adoption of structural reforms

CaixaBank Research, the bank’s research service, estimates that the potential GDP of the Spanish economy will be on average 1.7% between 2024 and 2026 and will drop to 1.3% in 2030, which is why it is urgent to adopt structural reforms.

This is reflected in an article included in its monthly report for the month of April published this week and consulted by Servimedia.

CaixaBank Research chooses to calculate potential GDP as a function of a set of production factors, typically labor, capital and the so-called total factor productivity (TFP). Potential growth results from TFP growth plus the weighted sum of labor and capital growth.

The labor factor is measured as the hours worked in the economy and takes into account the structural unemployment rate. Capital growth is measured by accumulating gross fixed capital formation over the capital stock each year, after discounting the depreciation of the capital stock. TFP is measured as the difference between real GDP growth and the weighted sum of the growth of labor and capital, so TFP captures everything that causes production to grow above what the accumulation of labor would allow. and capital.

CaixaBank estimates that between 2024 and 2026, the average potential GDP growth is 1.7%. The composition shows that the labor factor has a weight of 0.6 points, capital has 0.3 points and total factor productivity would have a weight of 0.8 points. For the 2027-2028 average, the potential GDP drops to be slightly less than 1.4%, mainly due to the loss of weight of labor and the gain in the capital factor, and for 2029-2030 the potential GDP would be 1.3 %, with even less weight of labor and somewhat more in capital.

It is urgent to reform

According to CaixaBank, from 2026 it is assumed that the decline in structural unemployment will stabilize, with which demographic trends will become more prominent, the growth of the working-age population will slow down and the growth in hours worked will moderate, which which would explain why they lose weight throughout the period. For capital, marked by investment, the bank expects a “certain recovery” in the coming years.

If GDP growth is lower than potential GDP, it means that there is underutilization of the country’s economic capacity, and if it is higher, there is overutilization.

CaixaBank highlights that its estimate of potential GDP is similar to that of other institutions such as the Bank of Spain, which places it at 1.1% in 2030 in the absence of the impact of European funds, and between 1.3% and 1.9%, depending on that impact. The Independent Authority for Fiscal Responsibility (Airef) estimates a potential growth of 1.3% from 2028.

However, the entity clarifies that the uncertainty surrounding these forecasts is high because it is subject to the evolution over a period of time of investment and the structural unemployment rate.

In any case, he assures that given this prospect of “moderate” growth in potential GDP in the coming years, “it is imperative to propose structural reforms that boost investment, improve the efficiency of the labor market and encourage greater growth in productivity.”