TheBank of Spainmaintains its GDP growth forecasts for the period 2019-2021 in its new update, published this Wednesday. Thus, it foresees that the Spanish economygrow 2.2% this year, to later slow down its growthup to 1.9% in 2020and up to 1.7% in 2021.
The institution that governs Pablo Hernández de Cos explains that the absence of revisions with respect to the projections made in December is due, in the short term, to the fact that the recent behavior of the activity is compensated for,"something more dynamic than expected", with the worsening of prospects due to the deterioration of the external context.
In the rest of the forecast horizon, the Bank of Spain argues, the most unfavorable valuation of foreign markets with respect to the forecasts made in December"tends to be compensated"with the downward revision of oil prices and expectations that interest rates will remain at" very low "levels for a longer period of time.
The entity emphasizes that its projections anticipate the prolongation of the upward phase of the cycle, so that growth will continue to be supported by the competitive improvements achieved since the beginning of the crisis,the "accommodative" toneof the monetary policy, the improvement of the patrimonial situation of companies, families and financial institutions and, in the short term, the effects of the expansive fiscal measures that were approved in the middle of last year.
"The dynamism of domestic demand has compensated for the deterioration of the external context, so that there has not been a deceleration in activity such as that registered in the EMU as a whole, particularly private consumption has continued to show remarkable strength" , underlines the Bank of Spain.
In any case, the institution needs, GDPwill decelerate throughout the period 2019-2021due to the progressive attenuation of the positive effects of monetary policy on the financing conditions of the economy, the moderation in the rate of advance of household consumption, which will lead them to increase their savings rate and, in the medium term, for the neutral tone of fiscal policy.
On the evolution of the first quarter, theBank of Spainstresses that GDP maintained a"remarkable dynamism"in this period, with a growth of around 0.6%, one tenth below the previous quarter, but the same rhythm registered in the first three quarters of 2018.
This growth of 0.6% between January and March will be supported by the national demand, since the external one will not contribute to the advance of the GDP, according to the estimations of the Bank of Spain, which situates the interannual rate of the growth of the employment in the first quarter in 2.5%, one tenth less than in the previous quarter.
Precisely the national demandwill continue to be the engine of the Spanish economy in the period 2019-2021,although its positive contribution will moderate throughout these years, with a growth of 2.3% this year and 1.7% in 2021. The main component of demand that will pull up will be private consumption, with increases of 2% this year, of 1.7% coming and of 1.4% in 2021, between one and two tenths more than the previous estimate.
Strong investment cut
On the other hand, the Bank of Spain has revised downwards the growth of capital investment due to the unfavorable external context. Specifically, it will increase 3.9% this year, eight tenths less than what was estimated in December; while investing in equipmentwill register a growth of 3.2%,1.8 points less than previously expected. On the other hand, investment in construction will grow by 4.6% in 2019, one tenth more than the previous estimate.
On the side of external demand, the negative contribution that currently presents the advance of GDP (subtract one tenth in 2019) will moderate from here to 2021, when it will be neutral. Exports will grow 3.3% this year to reach 4% in 2020 and 3.9% in 2021, while imports will increase by 3.6% in 2019,will rise by 4.6%the following year and will grow by 3.9% in 2021.
As regards employment, theBank of Spainit projects a moderation of its rate of advance, after the "remarkable dynamism" of recent years. Thus, the creation of jobs, with a growth of employment of 1.6% in the three years analyzed, will put the unemployment rate at 14.2% this year (one tenth less than the estimate in December) and in 2021 will be at 12.3%.
The wage increase does not translate into prices
In the area of prices, estimates that the general CPI will put its average annual variation at 1.2% this year, four tenths less than previously estimated; at 1.5% in 2020 andat 1.6% in 2021, in a context of certain stability of energy prices.
The Bank of Spain explains that the downward revision of inflation reflects that the recent evolution of prices has been less dynamic than anticipated in December, suggesting, in its opinion, that the translation at prices of increases recent salary is taking place"in a more contained way"than in the past.
For its part, the monetary authority has worsened by one tenth the estimate of public deficit for this year, up to 2.5% of GDP, butmaintains forecasts for 2020 and 2021 at 2% and 1.8%, respectively, with an expansive fiscal policy this year and neutral the rest of the exercises. Thus, public consumption will grow by 1.8% this year, two tenths more than the previous forecasts, coinciding with a year in which general, regional, municipal and European elections will be held.
According to the monetary authority, public revenues will grow in line with the tax bases, which depend mainly on the macroeconomic context, while assuming that pension spending will evolve in accordance with the increases approved for 2019 and, subsequently, according to the formula of revaluation established in legislation and the aging of the population. On the other hand, it links unemployment benefits to the evolution of unemployment, andInterest payments on debt, to the evolution of public debt and financing costs.
The Bank of Spain affirms that the risks to this central scenario of GDP growth are oriented downward. Among those of an external nature, the"greater weakness"of the external context and, in particular, of the euro area; the "lack of definition" of the details of the departure of the United Kingdom from the EU and the uncertainty about the possible adoption of new protectionist measures at the global level.
Internally, the agency continues to insist that a"high degree of uncertainty"about the future orientation of economic policies and, in particular, the resumption of the process of fiscal consolidation, which is necessary, he adds, to reduce the vulnerability of the economy.
Avoid widespread wage increases
Also with this last objective, he affirms that it would be "desirable" that the magnitude of the wage increases be accompanied by the specific circumstances of each company or sector and, in particular, the productivity growth, "avoiding generalized increases "for the economy as a whole, detached from those specific conditions.
In addition, it ensures that pricing and wage mechanisms should allow for a"degree of flexibility"sufficient to adapt, if necessary, to an environment of greater deceleration of activity, in order to limit eventual losses of activity and employment.