The Bank of Spain and the Independent Financial Authority (Airef) share the impression that the Spanish economy performed slightly better in the fourth quarter of 2022 than initially expected. In particular, the Bank of Spain noted that gross domestic product (GDP) may record modest positive growth in the fourth quarter, with a third-quarter pace of about 0.2% aligning with what governor Pablo Hernández de Cos indicated in a Senate Budget Committee appearance. At that forum, Airef president Cristina Herrero emphasized that partial economic indicators in both Spain and the euro area are improving more than anticipated. Avoiding a negative fourth-quarter GDP rate could help Spain sidestep a technical recession, a scenario Airef had warned about a few weeks earlier.
AIReF projects a deficit of 4.6% in 2022, 0.4 percentage points below the Government’s estimate
Some confidence indicators, such as purchasing managers’ indices and consumer sentiment, show weaknesses, according to the Bank of Spain’s governor. Yet employment has remained more resilient, supported by Social Security payroll data for the initial half of November. The governor noted that fourth-quarter indicators point to ongoing weakness in activity, although a slight positive growth could mirror the third quarter. As a result, the Bank of Spain forecasts that the current weakness in economic activity is likely to persist into the winter months. Activity is expected to regain momentum in the spring, driven by the gradual easing of energy prices, the recovery of international supply chains, and further deployment of European Next Generation EU funds.
The Bank of Spain expects December growth forecasts to be revised, though the changes are not anticipated to be drastic compared with the October projections, which had anticipated GDP growth of 4.5% for 2022, 1.4% for 2023, and 2.9% for 2024. The October projections also suggested an average of 8.7% growth for 2022, followed by a slower recovery in 2023 and 2024, with 5.6% and 1.9% respectively. In practical terms, these figures reflect an anticipated moderation after a strong carryover from prior years.
More time to deploy European funds
Over the past two years, the governor underscored the importance of properly applying European funds to support growth. In 2021, Bank of Spain estimates put the effect of fund utilization on GDP growth at about one percentage point, with subsequent revisions reducing that impact to about two tenths. Likewise, the initial 1.4-point impact projected for 2022 has already been trimmed to around one point. Through 2023, an additional 0.6 percentage points of growth are expected from European funds. Given the accumulated delay, the governor urged longer execution timelines for program implementation. He emphasized the need for careful project selection under the Next Generation EU program and suggested extending deadlines accordingly to address administrative challenges and the program’s structural focus.
Spain’s commitment to the European Commission under the Recovery Plan includes an obligation to commit 60% of Recovery and Resilience Mechanism funds by December 2022. The deadline for the remaining funds is set for December 2023, while the final payment tranche latch is projected for the third quarter of 2026, contingent on meeting the milestones and targets tied to the program.