BBVA economist foresees Portuguese GDP outstripping Spain in 2025

 In Banks, Economy, GDP, News

BBVA Research, the economic analysis department of Spanish bank BBVA, has forecast that Portugal’s GDP will slightly overtake that of Spain in 2025.

Speaking at a conference on ‘Financial Literacy, Pensions, and Savings for Wellness and Growth’ that marked the 10th anniversary of BBVA Pensions Institute in Portugal, and which took place on Tuesday (18 June), Professor Rafael Doménech, Head of Economic Analysis at BBVA Research said that in the short term for both Portugal and Spain, Portugal’s GDP would grow 2.2% this year (below that of last year), and would remain at 2.2% for 2025.

Spain’s economy, however, should grow 2.5% this year but only 2.1% in 2025, In both cases, GDP will grow on the back of tourism, immigration, and other factors.

The economist highlighted the risks of “budget adjustments, weak private investments and productivity, the execution of the Next Generation EU funding (RRP), the inability to fill job vacancies, and economic policy

He predicted “growth and inflation would remain resilient, reducing the room for manoeuvre for central banks to reduce interest rates”.

Rafael Doménech pointed out that Portugal and Spain had shown a differentiated performance in relation to the rest of the Euro Zone since the start of the war in Ukraine.

Both Portugal and Spain had seen a slowdown in price inflation in line with the rest of Europe while growth above the EU average would moderate risk.

The economist also outlined challenges and uncertainties for 2025. In terms of the new budget rules for Europe which stipulate that a state’s debt must not go beyond 60% of GDP and its public deficit must stay below 3% and that countries with debt at over 90% of GDP will be required to reduce it by 1% per year on average and by 0.5% when it is between 60 and 90%, he said that Portugal would have to make significant and sustained adjustments over time from 2025.

Rafael Doménech also discussed the tax burden, productivity and weak investment growth, as well as a restrictive labour market and difficulty in filling job vacancies in certain sectors, and salaries.

In terms of economic policy the economist highlighted political uncertainties affecting economic policy, but the most obvious challenge was implementing the Next Generation EU/RRP. EU funds.

The BBVA economist also called for structural reforms to increase the employment rate and productivity.

Last, Rafael Doménech pointed out the challenge facing public pensions in Europe because life expectancy was longer from the post retirement age of 65, with the baby boom generation of the 1960s reaching retirement age placing a burden on younger generations not as numerous to replace them having to pay for a large number of pensioners.

“The ratio of dependence will practically double in the coming decades” warned the Spanish economist, with an increase in the ratio of dependence of 66% in Portugal between now and 2070, but far less than in Spain. (94%)