The Spanish economy is expected to grow around 6% this year, driven by European funds. After energy prices surged due to the war in Ukraine, growth cooled to about 4%. Multiple observers note inflation trending higher, with forecasts suggesting an average around 7% this year and annual inflation near 9.8% at times, marking one of the highest inflation periods in nearly four decades.
The prevailing uncertainty and downside risks stem from the ongoing Ukraine conflict and the potential for energy prices to spiral further. If policy makers adopt the Iberian proposal to temporarily cap gas prices in wholesale electricity markets, electricity bills could fall and inflationary pressures might ease somewhat.
GDP growth between 4% and 4.5% would still represent meaningful progress, though it would remain below the 5.1% registered in 2021 and well short of the 7% initial government projection for 2022. It would also likely face adjustments as Brussels reviews the stability program updates.
The Bank of Spain has prepared new macroeconomic forecasts before the end of April and already published its outlook, projecting around 4.5% growth with average inflation near 7.5% through the summer, while CPI could fluctuate between 9% and 10% during the same period.
The Independent Financial Responsibility Authority AIReF lowered its GDP growth projection to about 4.3%, but assumes average inflation around 6.2%. Funcas estimates growth near 4.2% and an inflation rate around 6.8%, anticipating a peak in March with gradual easing into April and a year-end CPI close to 4.4%.
BBVA Research presents a slightly more cautious view, with GDP growth near 4.1% and inflation approaching 7% on average.
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Elevated prices have eroded confidence among households and businesses, expected to slow market momentum, dampen business investment, and strain family budgets as purchasing power falls.
In that backdrop, many expect a wage moderation pact between employers and unions to counter the risk of second-round inflation effects, though social partners remain cautious for now.
BBVA Research proposes expanding the pension aspect of the lease moderator agreement to include the minimum, while the government signals it will honor the latest reform that calls for reassessing the law in line with average inflation.
AIReF projects that retirement spending could rise by about 1.5 billion euros for each percentage point of inflation, with revenue also increasing as inflation boosts VAT receipts and personal income tax and social charges. This would help trim the public deficit to around 4.2% of GDP this year, below the government’s 5% target, reflecting a strong base from 2021 tax revenues despite the challenge of a cooling economy.
The Bank of Spain is forecasting a slightly weaker December budget close for 2022, around 5% of GDP, due to a dimmer economic outlook. It notes that measures taken to mitigate war impacts and higher inflation affect expenses, including pensions, civil servant salaries, and other social benefits, and are being updated to reflect the evolving environment.