The Bank of Spain forecasts a triggered inflation of 7.2% and cuts GDP to 4.1%

M. Lopez

The agency calculates that the gas cap approved by the Government will lower the average CPI rate by half a point for 2022, although it will increase one tenth that of 2023

Edurne Martinez

The slowdown in the Spanish economy was "more pronounced" than expected in the first quarter of the year: the omicrom variant and the transport strike disrupted the good prospects for recovery after the hardest part of the pandemic passed, and the outbreak of the war of Ukraine at the end of February only worsened the already weakened situation. And the second quarter is also being very complicated, with inflation on the rise and consumption held back as a result.

Thus, in its new economic report presented this Friday, the Bank of Spain forecasts that the GDP will advance by 0.4% in the second quarter, one tenth more than the first. In the year, the agency calculates that the economy will grow by 4.1%, four tenths less than in its estimates from just three months ago and one and a half points below the forecast that existed before the war broke out. For 2023, he expects the economy to grow by 2.8%, also one tenth below the April report, and only improves his forecasts for 2024, when Spain will finally manage to recover the level prior to the crisis, growing by 2.6%, one tenth more than estimated. Of course, always taking into account that we do not find another 'shock' that alters the forecasts. Something that today is not difficult to imagine.

They are more pessimistic forecasts than those of the Government, who estimates a growth of 4.3% for this year and 3.5% for the next. The Bank of Spain recognizes that the war in Ukraine is a "new negative disturbance" when the country had not yet recovered.

The rise in food and gasoline keeps inflation at 8.7%

"The start of the war opened a period of enormous uncertainty that, three and a half months later, continues unabated," the report states. And as a consequence of the war, "inflationary pressures" and changes in supply chains have intensified, which is "limiting the dynamism of world activity and darkening its future prospects."

Hopes on the gas cap

All this motivated by the persistently high level of prices, both for energy and food, which has a "pronounced negative impact on purchasing power and, therefore, on the spending of private agents", acknowledges the body . Thus, they assure that underlying inflation (which does not take into account the price of energy or fresh food) has "surprised" by its great rise, which stood at the end of May at 4.9%, the highest level high since the 1990s.

Extending the subsidy to gasoline and the VAT reduction on electricity would reduce the CPI for 2022 by three tenths

The only thing that can "slightly" reduce inflation is the Iberian mechanism to limit the price of gas - recently approved by the European Commission -, which can improve the inflation rate forecast for 2022 by half a point, although it will increase it by one tenth in 2023 because the mechanism is only valid for one year and will only last until the month of May. Therefore, the impact that the measure will have is less optimistic than that estimated by the minister of the branch, Teresa Ribera, who put it at eight tenths.

With hopes pinned on this measure, the forecast of the Bank of Spain is that we will end 2022 with an average inflation of 7.2%, three tenths less than forecast three months ago, while next year it will be 2.6% half a point more. It is a very high rate but not as high as that of the OECD, which this week pointed to an average inflation this year of 8.1%.

Impact of the anti-crisis plan

As for the measures approved by the Government to mitigate the effects of the war in Ukraine, such as the gasoline subsidy and the reduction in VAT on electricity, the Bank of Spain calculates that extending them beyond June 30 would mean reducing three tenths this year's inflation, although it would increase in the same proportion next year. Regarding the deficit, it will also mean increasing it by 0.3 points this year due to higher public spending.

The economic boost will come from tourism, European funds and investment

Without the extension of this anti-crisis plan, the Bank of Spain considers that the deficit will end the year at -4.6%, four tenths better than estimated three months ago. For 2023 the budget gap will be -4.5%, seven tenths less. As for public debt, the agency estimates 114.9% of GDP, two points above its previous forecast, while for 2023 it will remain very high, specifically at 113.2% of GDP, four tenths more than in April.

The economic boost will come fundamentally from the recovery of tourism -which is exceeding all expectations-, European funds and investment. Looking ahead to 2023, GDP will also gain strength thanks to private consumption, which is still six tenths below pre-pandemic levels despite the savings accumulated by families. The organization points out that by the end of 2024 most of the growth will come from the dynamism of employment and the rebound in consumption after years of uncertainty.

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