The Bank of Spain questions the Budgets by forecasting growth of 1.4% and inflation of 5.6%

And they are not the only ones who calculate a lower growth than the Government for next year. The Tax Authority (Airef) endorses the Executive's macroeconomic forecasts but warns that the growth estimate for 2023 poses "downside risks" with an estimate of 1.5%.

Under this calculation, the recovery of the level of GDP prior to the pandemic will be delayed until the first quarter of 2024, the year in which the economy will advance by 2.9% according to the supervisor. However, in the eurozone the level of GDP was already almost 2 points above the pandemic in the second quarter of this year. It will be in the spring of 2023, as the high inflationary pressures begin to relax, when the Spanish economic activity will recover a "growing vigor", says the agency's report, which point to a growth of only 0.1% in this third quarter (from July to September) despite the pull of tourism in summer.

Looking ahead to the most immediate quarters, the high prices of gas and electricity will negatively affect economic activity, although they do not foresee severe gas rationing due to the complete interruption of supply from Russia, said during the presentation of the quarterly report the director of Statistics of the Bank of Spain, Ángel Gavilán.

Inflation soared to 5.6%

And the inflation forecasts are not optimistic either. According to the Bank of Spain, prices will end the year at 8.7%, which indicates that the CPI curve could have peaked this summer after already moderated slightly in September to 9% from 10.4 % of August. They are 1.5 points more than predicted in their forecasts three months ago. For next year they forecast inflation that will remain anchored at very high levels, specifically at 5.6%, which means 3.1 points more than estimated. It will be in 2024 when inflation begins to give the economy a break and moderates to 1.9%.

This high inflation will lead to a slowdown in private consumption, which will slow down the economy. In addition, the growth predicted by the Government is based on the good evolution of exports of goods and services, especially due to the pull of tourism, which is already at rates similar to those of 2019, before the pandemic. The Budgets foresee an increase in exports of 17.9% in 2022 and 7.3% in 2023. But the Bank of Spain is not so optimistic and leaves the advance next year at 4%.

In terms of employment, the Bank of Spain calculates a favorable evolution of the unemployment rate, which will close this year at 12.8%, two points less than last year. In 2023 it will continue at the same level and will drop to 12.4% in 2024. The Government is once again more optimistic than the agency, forecasting that the unemployment rate will already drop to 12.2% next year.

European funds still fail to materialize

One of the points highlighted by Gavilán during his presentation was the slow deployment of the funds linked to the 'Next Generation EU' program. He warned that they are developing with "some delay" compared to what they themselves projected in June and estimated that the funds that will arrive this year will be around 12,000 million, compared to the more than 20,000 that they forecast four months ago.

Gavilán acknowledged that since the execution periods are "limited" until the end of 2023, it would be convenient to "lighten" the management of these funds. Despite this, he assured that if the delay in this application is due to the fact that the allocation of resources to projects that have a greater potential to change the growth structure of the Spanish economy is being analyzed in depth, there is no problem.

“Implicit” income agreement

And given the loss of purchasing power of workers and profit margins of companies due to rising prices, it is not the first time that the Bank of Spain has spoken of the importance of promoting an income pact between employers and unions, although they recognize that it is already materializing "implicitly" because wage growth is being lower than inflation and business margins are "relatively contained".

The Bank of Spain points out that the most vulnerable companies are those that are transferring the rise in costs to final prices to a greater extent, although this leads them to lose customers. The ones that are increasing margins the least are, according to the supervisor, the exporters, since they cannot raise prices without losing competitiveness.