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The Bank of Spain maintains its GDP forecast for 2023 at 2.3%, but cuts that for 2024 to 1.8%

It raises its estimate for inflation in 2023 and 2024, but estimates that the price of food will decrease in the coming quarters.

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The Bank of Spain maintains its GDP forecast for 2023 at 2.3%, but cuts that for 2024 to 1.8%

It raises its estimate for inflation in 2023 and 2024, but estimates that the price of food will decrease in the coming quarters


The Bank of Spain has maintained its growth forecast for the Spanish economy for 2023 at 2.3%, but has cut its estimates for 2024 from 2.2% to 1.8% and has lowered the 2025 projections from 2.3%. 1% to 2%, due to the increase in energy prices, the deterioration of the external context and the greater tension in financial conditions.

The general director of Economy and Statistics of the Bank of Spain, Ángel Gavilán, has indicated that this projection exercise does not incorporate the review of national accounting published this week by the National Institute of Statistics, which reflects an improvement in the evolution of the Gross Domestic Product in 2020, 2021 and 2022 compared to previously estimated.

According to the Bank of Spain in the report, the activity of the Spanish economy has shown signs of "weakening" in the summer months, as has happened in the European and international context. After growing 0.4% in the second quarter, the Bank of Spain estimates GDP growth of around 0.3% in the current quarter.

"During the summer months, the tightening of financial conditions would have continued to be a drag on growth," says the Bank of Spain, after warning that, in the coming quarters, activity is expected to continue showing dynamism. "relatively contained."

In fact, the most recent information points to a "relatively weak" pulse of activity in the last quarter of the year, due, among other factors, to the prolongation of the lack of dynamism of the external context and the continuation of the transmission process of the tightening of monetary policy to the costs of new credit operations and the financial burden of indebted agents.

Among other factors, the possible withdrawal at the end of 2023 of the measures approved to deal with the consequences of the war in Ukraine would contribute negatively to the advancement of the product of the Spanish economy in the coming years, especially in 2024.

In any case, the organization has highlighted that GDP is showing "comparatively greater dynamism" in Spain than in other countries in the euro area. This more favorable behavior is explained, above all, by the differences in the sectoral composition of the economy.

Specifically, the greater recent strength of activity in Spain would be related, in part, to the greater weight of services linked to hospitality and tourism, which have continued to experience very high demand during the summer.

At the level of prices, the institution has revised upward the average general inflation rate by four tenths for 2023, up to 3.6%, and by seven tenths for 2024, up to 4.3%. For 2025, the Bank of Spain maintains its forecast at 1.8%.

For the current year, the revision is mainly due to the rise in oil prices during the summer. For its part, for 2024, the upward revision is explained, in part, by the withdrawal of the measures approved by the Government to confront the war in Ukraine (1.5 points). Next year, the institution expects inflation to reach maximums of 5% in mid-2024 and then decline.

Regarding food inflation, the agency estimates that the rate will present a "declining profile" in the coming quarters (70% of food in the shopping basket is slowing down), due to the decrease in the costs of some productive inputs, such as energy and fertilizers, after the strong increases they registered during much of last year.

However, the magnitude of this moderation in food prices will tend to be limited by the negative impact that the materialization of adverse weather conditions could have on the production of certain agricultural goods in some areas and also, probably, by the withdrawal of Russia's Black Sea Cereal Export Initiative.

In the case of underlying inflation, the institution maintains its projections for 2023 at 4.1%, while it raises its estimates for 2024 from 2.1% to 2.3% and maintains its projections for 1.7% at 1.7%. 2025.

In the labor market, the Bank of Spain predicts that employment will maintain high dynamism this year, with a growth of 2.6% in terms of the number of people employed, to slow down in the following two years, in line with expectations for the activity, although the apparent productivity of work will experience a certain recovery.

The number of hours worked per person will remain below its 2019 level until 2025. Despite this, the institution points out that the continuation of the job creation process explains the projected decrease in the unemployment rate, which would be at 12% in 2023 (up from 12.2% previously); and at 11.5% and 11.3% in 2024 and 2025, respectively, the same rates as those planned in June.

In its new projections, the Bank of Spain improves its estimates on the deficit and public debt for 2023-2025. Specifically, for 2023, it projects a public deficit of 3.7% of GDP, compared to the 3.8% previously estimated, and places public debt at 108.8% of GDP, in contrast to 109.7% of June.

For 2024, the estimated deficit is 3.4% of GDP (same as 3.4% in its previous forecast) and the debt is 106.9% (previously 107.4%), while for 2025 it estimates a deficit of 4.1% (4% previously) and a debt of 107.9% of GDP, better than the 108% projected last June.

The fiscal assumptions register very few changes with respect to the June projection exercise. In terms of new measures, Royal Decree-Law 5/2023, of June 28, extended until the end of the year some of the actions adopted in response to the economic and social consequences derived from the war in Ukraine, with an estimated impact on the Public Administration deficit of one tenth of GDP.

The risks surrounding the scenario presented by the Bank of Spain are oriented downwards with regard to activity and balanced in relation to inflation. A very important source of uncertainty is the difficulties in calibrating the magnitude of the effects on activity and prices of the tightening of monetary policy carried out to date, which could lead to scenarios of greater weakness in activity and prices. prices or, on the contrary, the entrenchment of the current high inflationary pressures.

The Bank of Spain has not considered political uncertainty in Spain after the elections on July 23 as a risk factor to influence. This does not mean, according to Gavilán, that they do not think that it is not relevant as a factor in the future.

There are, in addition, other sources of uncertainty about activity and prices in the domestic sphere. In particular, doubts remain about the capacity of savings accumulated by households during the pandemic and regarding the pace of execution of the projects associated with the 'Next Generation EU' program and their impact on activity.

Another relevant risk is that derived from the persistence of a high structural public deficit and public debt, in a context of increasing financing costs and the reactivation of European fiscal rules.