Spain’s central bank expects a modest pace of growth in the near term as it adapts to a volatile global backdrop. In its latest quarterly outlook, the Bank of Spain nudges its 2022 growth forecast up to 4.5 percent, signaling a strong start to the year that exceeds earlier estimates. For 2023, the projection is trimmed to 1.4 percent, a notable downgrade from both government and bank projections. The trajectory for 2024 looks more buoyant, with growth near 2.9 percent as momentum builds, yet still below pre-pandemic levels. The upgrade for 2022 reflects a surprisingly healthy second quarter, marked by a 1.5 percent contribution, while the third quarter is expected to show only a marginal gain around 0.1 percent.
Amid higher uncertainty from global energy tensions and lingering supply chain bottlenecks, the bank notes that a quicker recovery could unfold if price pressures ease and supply constraints loosen through the spring. The central scenario depends on policy choices and a gradual easing of inflation, which would support broader activity in the months ahead. While a return to potential growth is anticipated by 2024, the path will hinge on external developments and domestic policy that sustain a favorable growth environment.
The bank also observes a slower rebound for the banking sector, with a return to pre-pandemic levels not expected until early 2024. This trend mirrors a broader euro area pattern seen in the first quarter of 2022, even as the institution emphasizes resilience within the Spanish economy. Ángel Gavilán, managing director of Economics and Statistics, describes a scenario in which Spain navigates risks and still maintains a stable growth path through the central forecast.
higher inflation
Inflation remains a central concern, with the Bank of Spain projecting an average rate of 8.7 percent for 2022, easing to 5.6 percent in 2023 and dropping further to 1.9 percent in 2024. These projections align with a global trend of slowing price pressures, though there is broad uncertainty about how quickly the adjustment will unfold. The year 2022 saw a notable upward revision in inflation relative to earlier expectations, and the 2023 forecast remains elevated at about 5.6 percent, well above prior estimates. The 2024 forecast at 1.9 percent signals a return to more typical price dynamics as energy costs stabilize and supply chains normalize.
The bank attributes much of the inflation relief to policy measures that dampened energy costs. By August, energy-price containment efforts are estimated to shave roughly three percentage points from an initially high 10.4 percent rate, yielding an inflation reading near 13.4 percent without intervention. The anticipated impact of these measures is expected to grow in September and October, aided by public transport discounts and reductions in natural gas taxes. This policy mix aims to prevent a prolonged inflationary impulse while supporting household purchasing power.
public deficit
The Bank of Spain notes that its latest forecast incorporates underlying fiscal assumptions, including pensions indexed to inflation as determined by law, but does not yet include the government’s detailed 2023 budget projections. Based on the current framework, the bank projects a public deficit of around 4.3 percent of GDP for 2023, dipping toward 4.0 percent in 2023 before rising again to roughly 4.3 percent in 2024. The projection contemplates a pension increase of about 8.7 percent in 2023, aligned with policy and demographic considerations. As with inflation, the deficit path will depend on how fiscal policy evolves and how social transfers and public services respond to price changes.