The governor of the Bank of Spain, Pablo Hernandez de Cos, signaled plans to adjust the country’s growth outlook in September. He noted that Spain’s 2023 GDP prospects would be revised downward while 2022 and 2023 projections would be recalibrated to reflect evolving conditions. Speaking at a discussion organized by La Vanguardia at La Pedrera, Hernandez de Cos reaffirmed the government’s latest projections for the Spanish economy and explained how these estimates align with the central bank’s evaluations.
The government led by Pedro Sanchez held its 2022 GDP growth estimate at 4.3 percent but trimmed the 2023 forecast by eight tenths, bringing it to 2.7 percent. The Bank of Spain, in its June projection, had anticipated a growth path of 4.1 percent for this year and 2.8 percent for 2023. Hernandez de Cos stressed that the economy should show solid momentum in the second quarter, yet warned that the trajectory of growth is likely to prompt a meaningful revision to 2023 forecasts as new data arrive.
He also pointed out that recent ECB policy actions, including a 0.5 percent rate increase, reflect heightened risks facing the European economy. While the central scenario did not fully anticipate energy distribution disruptions caused by the war in Ukraine, simulations have already explored how such measures could affect the euro area. For Spain specifically, the bank’s calculations indicate a GDP impact ranging from a 0.8 to 1.4 percent reduction, a consequence of energy supply shifts. However, Hernandez de Cos emphasized the difficulty of making precise forecasts until alternative energy sources are identified and deployed at scale.
Persistent Inflation and Wage Dynamics
The governor noted that inflation remains more persistent than previously anticipated and is likely to stay elevated through the summer. He expects inflation to gradually converge toward a 2 percent level over the medium term. To shield the economy from runaway price increases, he reiterated the importance of wage moderation and the potential advantages of a coordinated income agreement in Spain to share inflationary costs and offset revenue losses. He cautioned against rapid public wage and pension increases that rise in tandem with prices, while supporting linking minimum pensions to the consumer price index to assist those with limited purchasing power.
On private sector dynamics, the central banker observed that wage growth is generally below inflation, and profit margins are under pressure in several sectors. Regarding monetary policy normalization, he indicated that the ECB is likely to continue its rate moves, with markets pricing levels near what could be considered the natural rate around 1.5 percent. He added that the pace of normalization will depend on incoming data and the evolving inflation trajectory.
Hernandez de Cos also called for an early, credible fiscal consolidation plan to bolster confidence and ensure public finances remain sustainable, even though such measures would not be enacted immediately. This stance aligns with a broader aim to balance growth support with long-term fiscal responsibility.
Bank Taxes and Financial Stability
In discussing potential bank taxes, Hernandez de Cos stressed that any levy should not undermine credit volumes, interest rates, or financial stability. The European Central Bank’s past considerations on such taxes centered on monetary policy and financial stability, and the central banker argued that the design of any tax must avoid constraining credit creation or destabilizing markets. He declined to specify tax details while noting that the ECB’s collective assessment has generally viewed a broad, indiscriminate tax unfavorably. The central bank’s position remains cautious, emphasizing careful evaluation of how any new tax would interact with the euro area’s financial framework and growth prospects. In the end, the bank’s comments reflect a measured approach to regulatory changes that could impact lending and investment across Spain and the broader European economy.