The Basque Government reduces the region’s economic growth for this year to 1.9%

The Basque Government reduces the region’s economic growth for this year to 1.9%

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He Basque government has reduced its forecast of economic growth of Euskadi for this year, going from the previous 2.1% to 1.9%. However, the Executive has raised the growth forecast for 2025 by three tenths to 2.1% of GDP. In both exercises, it is estimated a generation of 18,000 jobs and the average unemployment rate will be 7% by 2024 and 6.6% by 2025. The weakness of the external environment slows down the recovery of the industrial sector, with 0.9% growth rates in 2024 and 1.8% in 2025.

These adjustments are included in the report on the Basque economy corresponding to the first quarter of this year, released this Tuesday by the Department of Economy and Finance of the Basque Government. The Executive revises economic growth downwards for 2024 placing it at 1.9% (the previous forecast was 2.1%), although it is updated upwards for 2025, the year in which the estimated GDP growth for Euskadi rises to 2.1% from 1.8 % former.

This year and next – according to these same forecasts – 18,000 jobs will be generatedand the average unemployment rate will be 7% for 2024 and 6.6% for 2025. These estimates incorporate the most recent economic situation indicators, among which the economic accounts for the fourth quarter of 2023 published by Eustat-Instituto stand out. Basque Statistics.

The Department of Economy directed by Pedro Azpiazu has recalled that last year was characterized by “the difficulties that the Basque and European industries had to face“. Among these problems were high energy prices, rising interest rates, geopolitical conflicts, and the decline in international trade.

Eurozone slowdown

The Basque Government has indicated that the situation of the world economy “is not stabilized”, and is experiencing “a prolonged weakness in international trade, a still high inflation, the restrictive monetary policy of the ECB and a significant drop in demand for German products due to part of China.” All of this “has meant a strong slowdown in the pace of growth in the euro areawhich ended the year stagnant and will continue in a similar situation during the first months of 2024.”

The Executive assumes that the path of the Basque economy in 2024 “will be conditioned by the result of the first quarter of the yearabout which there is something more uncertainty than usual“.

The main uncertainty is linked to the economic context of trading partners such as Germany

In any case, the Government foresees that the evolution during the year “be upward, especially in the second half of the year“, in which “a relaxation of monetary policy and, consequently, lower interest rates and a downward trend” is expected.

The forecasts of the Department of Economy indicate that the domestic demand of the Basque economy “would be 2.1% overall for the year”, and that this figure “would be repeated in 2025”; although in that case “already with a neutral contribution of the external balance, due to the gradual improvement of exports”. In this area, the “main uncertainty“is linked to the economic context of some preferred trading partners, especially Germany.

Strength of the service sector

The dynamics of the service sector continues contributing to the growth of the Basque economy from a sectoral perspective. After registering a growth of 2.4% in 2023the increase in its activity is expected to continue rising at an annual rate of more than 2% in subsequent years.

The evolution of the construction sector has been notable, taking into account the context of interest rates, although the forecast is that the sector ends up being affected by them and that growth will slow to 1.4% in 2024 and rebound slightly to 1.9% in 2025.

For its part, the industrial sector It increased its production by just 0.3% in 2023 and, although it is estimated that in the following years growth rates will be higher -0.9% in 2024 and 1.8% in 2025- the weakness of the external environment conditions its growth expectations.

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