Funcas foresees a sharp slowdown after the summer and raises inflation by almost 3 points this year, to 8.8%

It cuts its GDP growth forecast by 1.3 points in 2023, to 2%, and insists on an income pact that includes pensions

MADRID, 18 Jul. (EUROPA PRESS) -

The Savings Banks Foundation (Funcas) has maintained its forecasts for Spain's economic growth in 2022 at 4.2%, although it foresees a sharp slowdown after the summer and has cut its estimates for 2023 by 1.3 points, until 2%, in a context of uncertainty due to the war in Ukraine and rising prices.

At a press conference to present the update of its macroeconomic forecasts for 2022 and 2023, the Fundación de Cajas de Ahorros has projected an average inflation for the current year of 8.8%, 2.8 points higher than its previous scenario, and 5% by 2023, 2 points higher.

With all this, from Funcas they explain that their central forecast is for "slowdown, although" bordering on recession ", since in the fourth quarter of 2022 it estimates that GDP growth will be 0% and in the first quarter of 2023 it will be "slightly "positive, all this under the assumption that energy prices "remain stable".

As Torres pointed out, the current spiral in energy prices has caused an outbreak of inflation "that threatens to become chronic", with an underlying CPI that continues to rise in Spain and is one point above the Eurozone average. "Spain is in a worse position at the moment," warned the director of the Funcas situation, Raymond Torres.

After a very weak start to the year, with GDP growth of 0.2%, the second quarter shows "positive signs" thanks to the rebound in tourism, the increase in exports of goods and the boost in employment. However, the economic sentiment is deteriorating due to the rise in energy costs and supply problems and the drop in consumer confidence due to the loss of purchasing power.

All in all, Funcas, although it maintains the expected growth of GDP at 4.2%, changes the composition of the indicator. Specifically, domestic demand will only contribute 2.1 points, 1.7 points less than in the March forecast. This cut mainly reflects the loss of purchasing power of consumers due to inflation. "Households will draw on savings to finance their spending, which will allow a slight growth in private consumption," Torres pointed out.

For its part, the contribution of the foreign sector has been revised upwards, up to 2.1 points (1.7 more than in March), as a consequence of the recovery of income from tourism to the level prior to the pandemic and, in to a lesser extent, sales of non-tourist goods and services abroad.

This rebound in tourism, the dynamism of exports of non-tourist goods and services and the strength of the labor market will continue to support activity in the coming months. However, they will run out of steam after the summer, while geopolitical, energy and currency shocks will gain weight.

Consequently, the Spanish economy will register a sharp slowdown in 2023, with GDP growth of 2%, 1.3 points less than in the previous forecast. The director of Funcas, Carlos Ocaña, has insisted that these forecasts are very sensitive to the evolution of inflation and interest rates; higher inflation or a faster interest rate adjustment would result in lower growth, "a more adverse scenario that cannot be ruled out."

For this reason, he has insisted that a sensible income policy is needed, one that does not deteriorate the competitiveness of the economy. "And a prudent budget policy is needed that does not magnify the inevitable increase in the cost of our high public debt," said Ocaña, who believes that pensions should be included in the income agreement given their strong impact on spending.

Regarding the taxes on energy and banking recently announced by the President of the Government, Pedro Sánchez, the director of Funcas believes that these types of measures, "a la 'Robin Hood'" have the drawback that they raise less than the expenses they impose on economic agents. "You have to be very careful," warned Ocaña.

According to the Funcas report, the dynamism of the labor market will continue, although at a slower pace, in line with the sharp slowdown in the economy. Until the end of 2023, around 600,000 jobs will be created, bringing the unemployment rate down to 12%.

On its side, the public deficit will fall this year due to the game of automatic stabilizers and inflation. However, Funcas estimates that in 2023 there will be little progress in containing the imbalances due to the cooling of the economy, the revaluation of civil servants and the indexing of some budget items such as pensions. "The hole will be around 4.5% of GDP in 2023, a value close to its structural level, and the debt 112%", estimates the Foundation.