The report outlines a mixed picture for the Valencia Community economy as it closed 2022 with a noticeable slowdown in growth. The quarterly momentum waned, bringing the annual growth rate to 2.1 percent. This figure sits below the broader national average and sits in a range that mirrors or even exceeds what is typical for many economies in the European Union. The underlying factors shaping this slower pace include higher energy costs, rising prices for raw materials, ongoing inflation, and a sustained rise in interest rates. Together, these pressures have dampened overall activity and complicated the outlook for households and businesses alike.
In the domestic arena, demand across all components cooled, with household consumption bearing the brunt of the weakness. Yet the external side of the economy proved more resilient. Exports continued to grow and reached near-record levels, approaching 40,000 million euros across the European Community. In agriculture, adverse weather and steep input costs reduced both production and sales for most crops. The industrial sector and construction also slowed, reflecting broader demand weaknesses. The services sector, which had previously shown stronger performance through the first three quarters, felt the impact of slower transport and warehousing activity, tempering overall services growth.
The Consumer Price Index, which had been easing gradually since September, rose to 7.7 percent in January, a touch above the national average. This uptick underscores the persistent inflationary pressures weighing on households and firms throughout the region, even as some easing in other costs begins to appear in pockets of the economy. In this context, policymakers and market participants in the Valencia Community are closely watching how inflation dynamics interact with exchange rates, energy prices, and global demand patterns to shape near-term decisions about spending, investment, and hiring.
Looking ahead, the report stresses that tighter monetary policy and still elevated inflation will continue to influence private sector decisions across consumption and investment. A modest slowdown in euro-area growth is anticipated for 2023, with projections trending toward around 0.90 percent for the year. Against this backdrop, uncertainty remains elevated for the Valencia Community economy. Nevertheless, the analysis points to a cautious path of gradual stabilization. It suggests that while the first quarter of 2023 may show a continuation of the recent flat trend, there could be signs of a gradual improvement starting in the second quarter as external demand steadies and cost pressures ease somewhat. These forecasts align with broader global dynamics, including how European industry and services adapt to energy cost structures, supply chain normalization, and wage developments. This nuanced view emphasizes that structural reforms and productivity enhancements will be important to sustaining a recovery over the medium term, even as short-term risks linger. The emphasis is on resilience among firms and households as they navigate a slower growth environment while adjusting to higher living costs and financing costs—elements that policy discourse remains keenly focused on across the region and in neighbouring economies like Canada and the United States as well. (Source: regional economic analysis)
IMF warns of ‘relatively weak’ growth of Spanish economy
CEV emphasizes that a gradual easing of overall costs and prices, coupled with a modest revival in the European economy and a resilient labor market, could support a modest rise in regional GDP. The forecast points to a trajectory that, by year end, could bring growth near 1.5 percent, a level higher than some national projections and suggesting a more resilient regional performance than previously anticipated. (Source: CEV regional outlook)
Even with this progress, the report reiterates concerns about high inflation and cites updated scenarios fromFuncas that forecast higher inflation to average around 4.2 percent for the year. If these projections materialize, consumers and businesses will continue to face significant price pressures, influencing wage negotiations, price-setting, and the pace of investment. The combined effect of inflation and policy tightening remains a central theme for regional planning across the Valencia Community and serves as a reminder of the intertwined nature of local outcomes with broader European and global economic trends. (Source: Funcas forecast report February 15)