The chair of the Independent Financial Responsibility Authority, Christina Herrero, warned on Tuesday that inflation could surpass 5 percent in 2023 unless concrete steps are taken to mitigate its rise.
Speaking before the Budget Committee of Congress during the review of the annual budgets, Herrero indicated that AIReF’s forecast for this year points to inflation averaging 8.9 percent, with a projection of 3.9 percent for 2023.
She noted, however, that the 2023 forecast rests on specific assumptions. If the current measures to curb inflation were extended as of now, the year could end with inflation just above 5 percent rather than higher.
Given this scenario, Herrero considered it reasonable to prolong some existing measures or to introduce new ones. The head of AIReF argues that this conclusion follows from the Government’s own projections for 2023, which show continued economic conditions; she observed that some measures not included in the initial plan were announced shortly after the project was submitted, and the budget proposal sent to Brussels contained two scenarios, one cautious and the other imprudent.
She criticized a drift in recent years where budgets have exhibited persistent shortcomings in control capacity and in 2023 this area worsened. Alongside the lack of new measures, she pointed to unrealistic revenue projections for 2022 closing, a concern she regards as difficult to justify without transparency.
The head of the institution recalled AIReF’s forecast for economic growth in the coming year, at around 1.5 percent. This is six-tenths below the Government’s estimate and partly reflects the carry-over effect from 2022, as there are signals of a recession in the third quarter and a potential negative development in the fourth quarter.
If the risk materializes, these estimates would become distorted. A tightening of monetary policy, a reduction in private consumption, or delays in the use of European funds could all alter the trajectory, even as a rise observed in September suggested some resilience in the near term.
The scenario assumes a rapid resolution of the energy crisis, which is a key condition for the Recovery Plan’s forecast of pre-pandemic GDP recovery to be achieved by the first quarter of 2024.
3.3% open
Herrero’s forecast for the end of 2023 places the economy at about 3.3 percent of GDP, roughly six-tenths lower than the Government’s projection, with a potential rise to 4.6 percent if inflation-fighting measures are extended beyond their current horizon.
For the year, AIReF expects the public deficit to finish at 4.4 percent of GDP, which would be below the Government’s forecast of 5 percent.