The vice president of the Bank of Spain cautioned that a recession in Spain is not anticipated in the near term, even as some sectors face muted signals for the economy. He emphasized cautious optimism about growth prospects in the current year and noted that monetary conditions are likely to stay favorable for a period, with projections suggesting a stable landscape for 2023.
He acknowledged that while the outlook is broadly positive, there is no zero-risk scenario. Some quarters may still register softer results, and potential disruptions to energy supplies, particularly Russian gas to Europe, could weigh on growth. Inflation remains a concern, driven in part by energy prices, though Spain’s energy shortages are not expected to worsen the overall inflation picture in the near term.
Although Spain’s starting point looks stronger than many peers, the energy price spike is identified as the principal driver of price pressures. The bank expects inflation to moderate as energy markets stabilize, even as domestic demand remains resilient and monetary policy gradually tightens to prevent overheating.
“Revenue Agreement”
Within this context, the Bank of Spain advocated a broad income agreement across public and private sectors. The proposal emphasizes that salary increases should outpace inflation only slightly, and that firms should avoid fully passing all rising costs to consumer prices. In essence, the goal is to prevent entrenched inflationary behavior while sharing the burden across society.
The approach warns that failing to align wages and prices could spark a wage-price spiral with long-term consequences for growth. The message is clear: a stage-managed adjustment across incomes and costs can help stabilize the economy through softer price pressures and steadier purchasing power for households.
Alongside this, the bank supports negotiations on the 2023 budget aimed at a fiscal consolidation path that provides some predictability regarding public debt dynamics relative to GDP in the medium term. The objective is to move toward a more moderate and sustainable fiscal trajectory that supports ongoing growth while controlling debt accumulation.
On the labor market front, second-quarter unemployment data were described as favorable, with solid performance in both industry and services. Still, analysts advise waiting for a fuller assessment of the impact stemming from energy supply disruptions originating from abroad and the way those disruptions might reverberate through the economy.
In responding to questions about interest rate trends, the vice governor noted that a gradual normalization of monetary policy is compatible with maintaining economic stability, provided adjustments are implemented progressively and in step with inflation dynamics. The aim is to balance the need to contain inflation with the imperative of supporting growth and employment.
Regarding the currency pair, the euro and the dollar, the deputy governor highlighted Spain’s robust export sector. He pointed out that a competitive euro has boosted Spain’s external sales, including in tourism, and has helped domestic firms expand abroad in a way that supports overall economic resilience.
Bank’s Solvency and Tax Considerations
The vice president also addressed a new provisional tax on bank profits, designed to tax interest margins and commissions at a rate of around 4.8 percent. He argued this measure should not threaten the solvency of the Spanish banking system, especially given the sector’s role in financing the economy and channeling savings into productive investments.
He cautioned that while increasing interest rates could bolster bank earnings over time, policymakers must remain mindful of the broader economic uncertainties facing Spain. A cautious approach was urged to ensure that financial strength supports, rather than disrupts, real-economy activity and investment flows.
Ultimately, the banking sector is viewed as a critical conduit for capital in the economy. Supervisors stress that banks must generate profits to sustain lending to firms and households, enabling investment to flow toward growth-enhancing opportunities. The emphasis remains on stability and prudent risk management to safeguard long-term economic health.