Bank of Spain cuts to 1.4% the rise in GDP in 2023 and delays the recovery of the pre-pandemic level to 2024

Inflation shoots up to 8.7% in 2022, one and a half points more, and 5.6% in 2023, three points higher than the previous estimate

MADRID, 5 Oct. (EUROPA PRESS) -

The Bank of Spain has raised its growth forecast for the Spanish economy to 4.5% this year, four tenths more than its previous estimates in June, but has cut those for 2023 by 1.4 points, to 1.4% , well below the 2.1% estimated by the Executive. For 2024, it foresees a growth of 2.9%, three tenths more.

According to the latest Quarterly Report on the Spanish Economy published this Wednesday, the recovery of the level of output prior to the pandemic would probably be delayed until the first quarter of 2024, about two quarters later than projected by the agency in June.

The GDP level of the Spanish economy is still 2.2 percentage points below that reached at the end of 2019, while in the euro area as a whole, the level of activity would already be in the second quarter of this year , almost 2 points higher.

The notable downward revision in next year's growth responds to the higher inflation rates, the less favorable financing conditions, the difficulties for companies in the branches most affected by the worsening of the energy crisis to carry out their activity, the increased uncertainty and weakening global demand.

This added to the fact that, despite the improvement in growth estimates this year, the Bank of Spain foresees a "significant slowdown" in economic activity during the second half of 2022, which will have a "carryover effect" in 2023. Therefore , the advance of 4.5% projected by the organism this year reflects, fundamentally, the upturns in activity that have already materialized until the second quarter.

According to the Bank of Spain, after the rebound in activity in the second quarter, various developments have had a negative impact on activity in the summer months and have "darkened" the economic outlook. In fact, in the third quarter the forecasts point to a growth of only 0.1% quarter-on-quarter.

Looking ahead to the most immediate quarters, the high prices of gas and electricity will adversely affect economic activity, although the Bank of Spain does not foresee severe gas rationing due to the complete interruption of supply from Russia.

Activity would regain increasing strength from spring thanks to the gradual easing of tensions in the energy markets, the gradual resolution of the disruptions in global supply chains and a greater relative deployment of the funds linked to the 'Next Generation' program EU'.

The agency warns, however, that it is developing with a "certain delay" with respect to June projections. Now the Bank of Spain estimates that the funds that will arrive this year will be around 12,000 million, compared to the more than 20,000 million previously forecast.

On their side, tourist flows from abroad, which have practically recovered the levels prior to the health crisis, will also act as a support for activity, although their dynamism will be moderated in the short term due to the effects of the inflationary rebound on real income of potential tourists. INFLATION SHOOTS UP IN 2022 AND 2023

As for inflation, the Bank of Spain has increased its forecasts for 2022 from an expected average of 7.2% to 8.7% for this year. In addition, the outlook worsens for 2023, when the CPI will stand at 5.6%, three points more than the previous forecast. In 2024, rates of 1.9% are estimated, one tenth higher than the previous forecast.

Contrary to the headline CPI, core inflation is not expected to decline from its current high levels until next spring. The reason is that, in the coming months, the transfer of the companies' recent cost increases to their selling prices will continue to be completed.

And it is that the underlying component will reach 3.9% this year, compared to the previous 3.2%, and will moderate to 3.5% in 2023 --higher than the 2.2% of the last estimate-- and to 2.1% in 2024, one tenth higher than the previous forecast.

One element that has contained the inflationary dynamic in recent months is the actions implemented by the authorities precisely to limit the effects of this increase in the price of gas.

Specifically, it is estimated that, in August, these measures contributed to reducing the general inflation rate by slightly more than 2 percentage points. Of this amount, approximately half corresponds to the effect of the mechanism to limit the price of gas used in electricity generation.

Regarding the evolution of employment, the institution has maintained the forecast for this year, in which it expects an average unemployment rate of 12.8%, although it would rise slightly to 12.9% in 2023 and end 2024 in 12, 4%.

On its side, the agency improves its estimates of income and expenses for this year, since the public deficit will remain in 2022 at 4.3% of GDP, compared to 4.6% previously estimated. In addition, there are also better prospects for 2023, with a rate of 4% compared to the previous 4.5%, but that of 2024 worsens one tenth to 4.3%.

On his side, he has improved his estimates for the debt in 2022, after placing it now at 113.3% of GDP, compared to the 114.9% previously forecast. Looking ahead to 2023, the debt will stand at 110.7% of GDP, better than the previous estimate of 113.2%, and in 2024 it will fall below the 110% threshold and stand at 109.9%, better than in previous forecasts (112.5%).

The main risk for the Spanish economy derives from the evolution of the gas market and its manifestation both through the evolution of prices and quantities. Under the unfavorable price scenario, the level of GDP in 2024 would be one point lower than that implicit in the current projections, while inflation would be 1.1 points higher in 2023 and five tenths higher in 2024

In addition, the agency warns of the uncertainties associated with the degree of transfer of recent price and cost increases to the rest of the economy's prices and to wages.

In this sense, he warns that the intensity with which the transmission of higher production costs to final prices is taking place in recent months "would have increased the probability that second-round or feedback effects will be triggered between prices and significant salaries", and, therefore, an additional aggravation of the inflationary process.

Also, in the current context of high uncertainty, a possible rebound in saving for precautionary reasons that weighs down household spending and the dynamism of aggregate consumption cannot be ruled out.

Finally, the Bank of Spain warns that the accumulated losses in the real value of the income of companies and families, together with the higher interest rates, increase the vulnerability of those agents with a less healthy economic and financial situation, which could influence their spending levels to a greater extent.

The director general of the Bank of Spain, Ángel Gavilán, has insisted on the importance of promoting an income pact between employers and unions. Gavilán has pointed out, however, that this pact is already taking place implicitly, since wage growth is being lower than inflation and business margins remain relatively contained.