Expectations for the European economy at the beginning of the year were “solid” and “prolonged” expansion. This Russian invasion of Ukraine This blew up these forecasts with negative repercussions for the Eurozone as a whole, including Spain, which will grow much less than expected. Spain’s economy will grow on an annual basis, according to new spring forecasts presented by the European Commission this Monday. 4% in 2021 and 3.4% in 2023 what does it mean? a 1.6 point and one point snip, respectively Compared to the data announced by Brussels at the beginning of February, inflation will average 6.3% this year. Although the investments Next Generation EU program and revival of the tourism industry will help target growth, Spain Won’t recover to pre-pandemic level until mid-2023.
“The Spanish economy was holding its momentum in early 2022, but supply cuts and increasing inflationary pressures In the context of the war, they have slowed economic activity since the end of February,” the European Commission explains in its forecast document released this Monday. The result was a meager 0.3% growth slowed by the sharp contraction in private consumption in the first quarter of the year, followed by a new slowdown with an estimated 0.1% growth in the second quarter. This panorama prompted the Community Manager to use the scissors and cut the growth forecast to 4% in 2022 and 3.4% in 2023, meaning that Spain will not be able to recover its pre-pandemic growth levels until mid-2023. The government’s forecast, announced at the end of April, lowered the forecasts for this year to 4.3% and for next year to 3.5%.
Based on analysis by community technicians revival of tourist activity will continue to be the main engine of growth that will accelerate it. from the third quarter of the year Thanks to the robustness of the labor market and investments in the recovery program supported by savings accumulated during the pandemic and a certain reinvigoration of private consumption. However, it will be aggravated by households. decline in purchasing power will remain below pre-pandemic levels in 2022 and 2023 in a high context and due to the decline in real wages and private consumption.
To all these, we should add the uncertainty created by the high energy prices, which affects all Eurozone countries in general, but which increased much faster in Spain. The Commission is of the view that “a new rise in prices may hit activity particularly hard in sectors such as transport, construction and electricity-intensive industries” and that “consumption and investment decisions may be delayed until the existing disturbances are resolved”. The risk factor that threatens private consumption, and especially the lowest income earners, even more: the persistent impact of inflation on the purchasing power of households.
Inflation is 6.3 percent this year.
Brussels is confident that inflation will slowly begin to decline by mid-year, supported by measures promoted by the Pedro Sánchez Government, such as fuel cuts and limiting wholesale gas prices. Despite this, annual inflation is expected to rise from 3% in 2021 to 6.3% in 2022. In 2023, it is expected to decrease to 1.8% again. Core inflation, excluding energy prices, will remain high, reaching 3.9% in 2022 and falling to 2.7% in 2023.
Regarding employment, the panorama drawn by Brussels predicts an improvement and reduction in the unemployment rate, which has reached its lowest level since the end of last year (from 14.8% in 2023 to 13.0% in 2023). Unemployment rate thanks to continued job creation and the existence of the recently created “RED mechanism” to support companies and workers in transition. In addition, wage growth will accelerate, albeit at a slower pace, than price increase, resulting in a loss of household purchasing power and a decrease in savings rates in the future.
Less deficit and debt
The new review of Spain’s economic situation shows that Spain closed last year with a better-than-expected public administration balance, and that the recovery in economic activity and good income behavior encouraged the reduction of the public deficit from 10.3% of GDP to 6.9%. For this 2022, Spanish authorities will continue to reduce the deficit in public finances, thanks to sustainable economic growth and the continued strength of revenues, particularly from production and import duties.
In the expenditure section, measures to mitigate the consequences of the Russian war will focus on reducing the deficit, which is expected to be 4.9% in 2022, to 4.4% in 2023. This reflects the dynamism of economic growth and moderation. While indexing pensions could boost spending if inflationary pressures persist, some of the spending offsetting the gradual return of income to traditional elasticities, according to the Commission. Forecasts also project a gradual decrease in public debt to 113.7% in 2023.