Analysts expect Euribor to guide the pricing of floating-rate mortgage loans over the next year, with forecasts pointing to a level just above 3% for 2023. This aligns with the early November average around 2.8%, as calculated by the Forecast Panel of the Savings Banks Foundation, Funcas, following the European Central Bank’s latest rate moves. The ECB has raised the policy rate recently, locking in a 2% increase for the calendar year.
Panel members now foresee a continued rise in the official rate, reaching about 3% and then leveling off from the second quarter of 2023. The ECB deposit facility is expected to settle near 2.5% by the end of the forecast horizon, one percentage point above the previous projection issued in September.
For the 12-month Euribor, after a sharp rally in 2022, the indicator is projected to average around 3.1% in the middle months of next year, with a mild downward tilt as the year progresses. Following a substantial rise of more than 3 percentage points in 2022, the mortgage Euribor rose from a negative rate of -0.477 in January to an average around 2.8% by mid-November. The panel indicates a stabilization near 3.1% through 2023, assuming market and policy paths remain supportive of that level.
In the area of bond markets, the Funcas forecast panel also updated its projections for the 10-year Spanish government bond, expecting yields to hover close to 3.5% into 2023. This marks around half a percentage point higher than the September projection. At present, the yield on Spain’s 10-year bond sits above 3.1%, roughly 30 basis points higher than in September. The panel notes that the risk premium has steadied at more moderate levels, around 105 basis points, suggesting the absence of acute financial tensions in the public debt market for now.
Growth, inflation and deficit
Turning to the broader macro picture, Funcas projects a robust expansion for the Spanish economy this year, with growth around 4.5%. The panel revisited the National Accounts figures for the second quarter and confirmed that GDP rose 0.2% in the third quarter, topping expectations. Looking ahead, most participants anticipate a slower or negative pace in the fourth quarter. The consensus for 2023 lowers the GDP growth forecast from 1.9% to 1.1%, with an initial quarter of virtually flat activity followed by modest gains, roughly 0.5% to 0.7% in the remaining quarters.
Inflation projections show a firmer price environment into next year. The average annual inflation rate for 2022 was nudged upward by about one-tenth, reaching 8.7%, while core inflation remained around 5%. For 2023, the overall inflation forecast rises by about three-tenths to 4.1%, with the core measure advancing by about two-tenths to roughly 4%. The interannual comparisons point to December 2022 and December 2023 being 7.1% and 2.8%, respectively.
Public finances are expected to stay in deficit territory, though the balance would gradually ease. Based on the Funcas Panel, the annual deficit in 2023 is projected to be around 4.8% of GDP, easing slightly to about 4.5% in 2024. These figures reflect the ongoing fiscal challenge even as growth and inflation trends unfold. (Funcas Panel)