Pandemic first, then the supply crunch, and this year the specter of war. Economic activity has never returned to pre-crisis norms since the global upheaval began nearly three years ago. Europe faced a sobering truth: its international position is highly vulnerable to external actors. At best, they are mere competitors with occasional dealings with the Continent; at worst, they pose a genuine challenge.
The mismatch between supply and demand after the reopening of economies, coupled with the turbulent international context shaped by conflict, led many growth plans to be scrapped. The word uncertainty has dominated headlines, and 2023 prospects have been shadowed by fears of recession or stagflation.
A major conference organized to illuminate the future of the country’s economy brought together leading voices to discuss the 2023 prospects and the key challenges ahead. The event, held at a prominent venue in Madrid and sponsored by CaixaBank, gathered senior economists who tried to map the main coordinates for the coming years.
Increase
Cooling, but not stagnation. That was the general takeaway from the panel. The future looks less encouraging than what was seen before, with a slowdown expected in the third quarter to persist into the next quarters, according to Luciana Taft, an Economics and Markets adviser. An average growth of around 1 percent for Spain in the coming year was projected by Taft, with José Ramón Diez, Director of Economics and International Markets at CaixaBank Research, lending his voice to the assessment.
The panel, however, urged caution. Spain remains the slowest among its peers in returning to pre-crisis levels, noted an economist who specializes in finance and markets for the region. Consumer confidence has weakened—from a notable drop in recent times—and the outlook remains challenged. Inflation is expected to stay high for an extended period, and this reality weighs on household budgets.
Inflation
The core issue facing the economy is the persistent supply crunch, especially in energy products, which sparked a cascade of price increases across markets. This has pushed inflation higher in a stagnant European economy that has grappled with years of low consumer price indices and near-zero interest rates.
Imbalance between supply and demand over the past two years explains much of the price rise. While prices aren’t collapsing, they are accumulating. Low inflation is expected to persist over the next two years, according to some experts. However, there are warnings that an inflationary impulse could linger as structural dynamics evolve.
Analysts also stressed that the year could reveal the long-term consequences of policy choices. The discussion highlighted that monetary policy—central banks raising rates to curb inflation—has been a primary tool, while fiscal policy, through transfers and tax adjustments, remains a potent lever on the front line of the inflation battle.
With a keen eye on policy, experts noted that the balance between fiscal and monetary measures will shape the inflation path. An expansionary fiscal stance might trigger a stronger monetary response, while examples from other major economies illustrate a spectrum of outcomes.
Work
The fear of inflation turning into a prolonged recession hinges on the labor market. Central banks are tasked with avoiding recession, yet a turnaround in employment closely tracks how the broader economy performs. If growth stays around 1 percent, job losses could be avoided, and the labor market might remain stable even as the economy recalibrates. There is particular attention to the structure of the labor market, with signals that certain skills are in tight supply and may require targeted training and education reforms.
Optimism exists even in the face of potential downturns. Employment tends to lag behind economic cycles, and policymakers recognize that the job market could soften as a side effect of the current situation. Still, there is confidence that a measured pace of growth can prevent major upheavals in employment levels.
Wage growth versus the cost of living remains a critical concern for households. The persistence of insecure work and rising living costs means families must navigate tough financial choices. Analysts emphasize the need for policy interventions that support living standards while maintaining long-term competitiveness.
There is also a call to reform the education system to better align with labor market needs. With a sizable unemployed population, the consensus points to reforms that expand training opportunities and upgrade skills to reduce structural unemployment.
Debt
Public debt continues to loom as a major challenge, a legacy of the financial crisis that still weighs on policy options. The debt level remains elevated relative to GDP, prompting discussions about sustainable paths forward and the potential influence on investor sentiment. Debates include how to balance spending with the need to reduce deficits and debt in the medium term.
Both public and private debt dynamics are important, with private debt easing somewhat as households and firms deleverage. Yet long-term financing conditions and the capacity to attract investment will be crucial as governments navigate a shifting financial environment. The overall message is that a tighter policy landscape may become the norm, shaping strategic decisions across the economy.
Experts warn that a tough year may be coming, but they also underline that debt levels are a shared burden across generations. The need for prudent management and a return to sustainable spending remains a central theme for policymakers as they prepare for the years ahead.
fast recovery
During the proceedings, senior policy leaders discussed ongoing measures to modernize key sectors. A European blueprint has focused on digitization and ecological transition to ensure technological and energy leadership. Substantial funds have been allocated to accelerate this transformation, with a portion directed toward non-refundable transfers and credit instruments to support investment.
The short-term effects of pandemic-related measures may fade, but the strategic reform agenda is designed to eliminate imbalances through structural changes. The plan for Recovery, Transformation, and Resilience aims to enhance productivity, human and social capital, and business dynamism, aligning the economy with future needs.
Policy makers emphasized that controlling core inflation requires reducing energy weight in overall inflation and allowing raw material prices to ease. The long-run objective remains rapid recovery coupled with structural reforms to safeguard macroeconomic stability and competitiveness.
The focus on the labor market highlighted strong employment figures and a shrinking unemployment threshold for youth. Investment plans, including targeted PERTE programs, were identified as tools to mobilize public and private resources, promoting a broader modernization of the economy. The aim is to build robust infrastructure while expanding digital capabilities to power growth across sectors.