The European Commission has today cut its GDP growth forecast for Spain in 2023 to 1%, more than one point less than it calculated a few months ago, but believes that the Spanish economy will avoid the technical recession in a year in which inflation will drop to 4.8%, below the European average.
The new autumn economic forecasts of the Community Executive made public today, whose study period runs until 2024, foresee a contraction of 0.3% in the last quarter of this year and a rate of 0% in the first three months of 2023, thus avoiding chaining two quarters in negative, which would mean a technical recession.
In addition, Brussels raises the GDP forecast for 2022 by half a point, from the 4% announced in July to the 4.5% included in the document presented at a press conference by the Commissioner for the Economy, Paolo Gentiloni.
According to Brussels, among the great powers of the euro, only Spain will avoid this technical recession at the end of 2022 and the entry of 2023 and will close next year with an advance of 1%, above the Netherlands (0.6%), France (0.4%) and Italy (0.3%), and Germany will be the only one to end 2023 with a contraction of 0.6%. The growth forecast for 2023 is, however, more than one point lower than what the Government contemplates in its General State Budget project (2.1%).
The Autumn 2022 economic forecast of the European Commission in Brussels notes that “after a strong first half of the year, the EU economy has now entered a much more challenging phase. The consequences of Russia’s aggression against Ukraine are depressing global demand and reinforcing global inflationary pressures. The EU is among the most exposed advanced economies due to its geographical proximity to the war and its heavy reliance on gas imports from Russia.”
As a result of this adverse situation, “GDP growth will continue to be weak at the beginning of 2023 before gaining strength in the second half of the year”, summarizes the Brussels text, in which less pressure is cited among the improvement factors of energy prices, which will lead to a “moderate recovery of private consumption”, greater normalization of tourism and the execution of reforms and investments of the recovery plan.
Gentiloni explained that the worst prospects for Spain rest on more pessimistic growth forecasts for the services sector with lower private consumption and investment. “Both components grow more robustly (in the Government’s forecasts) than we estimate, that is the basis of the difference,” according to Gentiloni’s statements in Brussels collected by Efe.
The Italian has stressed, however, that the data for the Spanish economy for the coming years are “quite positive” and it will even be the one that grows the most among the large ones in the eurozone in 2024 thanks to the increase in foreign and domestic demand. Thus, in 2024 the GDP will grow by 2% and inflation will have already reached 2.3%, according to these European forecasts.
Despite the downward trend in price growth, the community authorities warn that the chain effect of energy price inflation from energy and food to other goods and services has become “increasingly visible” throughout the second half of 2022 and will cause core inflation to “remain at elevated levels” for years to come. In this sense, the report warns that “a faster wage adjustment could fuel higher underlying inflation.”
On the other hand, the “strong” growth in revenue will underpin a reduction in the deficit in 2022 from 6.9% in 2021 to 4.6% of GDP despite the adoption of measures that have reduced revenue throughout the year (such as VAT reductions) or have increased spending (the report cites the discount of 20 cents per liter of fuel).
In 2023, the gap between revenue and public spending will be reduced by three tenths, to 4.3%, “reflecting a weaker macroeconomic scenario”, to take advantage of the acceleration in GDP growth a year later to stand at 3.6 %.
With regard to public debt, the European Commission’s forecasts contemplate that this year will close at 114%, four points less compared to 2021, and then continue on the downward path to 112.5% in 2023 and the 112.1% in 2024.
For the eurozone as a whole, the forecast is that it will enter a recession in the last quarter of this year, but it will manage to grow by 0.3% in 2023, more than one point below what was forecast in July, while inflation It will rise to 6.1%, more than two points compared to what was expected in the summer.
In 2022 the GDP will grow by 3.2%, six tenths above what was anticipated in July thanks to a better-than-expected first half of the inertia of the recovery from the pandemic, and despite the fact that the economy will already contract by 0.5 % in the fourth quarter and inflation will reach an average of 8.5%, nine tenths more than in the previous outlook report.
European Trade Commissioner and EC Executive Vice-President Valdis Dombrovskis points out that the EU economy is at a turning point as “we deal with the side effects of Russia’s unprovoked war against Ukraine and a complex geopolitical environment: High energy prices are fueling inflation, people across Europe are struggling with rising costs of living, and our businesses are losing competitiveness.”
After a relatively strong economic performance this year, “the economic outlook for next year has dimmed… But a strong labor market coupled with reforms and investments emanating from the Recovery and Resilience Funds should help support the economy.” Our focus now is to support the most vulnerable with targeted measures, align fiscal and monetary policies to tackle inflation, and secure our future energy supplies as quickly as possible.”
For the European Union as a whole, Brussels anticipates a similar trend: it raises its growth forecast by five tenths for this year, to 3.3%, and cuts it by 1.2 points for the next one, to 0.3%, while revising its inflation forecast upwards by one point for 2022, to 9.3%, and by 2.4 points for 2023, to 7%.
Although the reactivation of the economy and the relaxation of the measures against the pandemic boosted the growth of the European economy even in the third quarter, Brussels expects that the high uncertainty, the high energy prices, the erosion of the purchasing power of the households and tougher financing conditions “lead the EU, the eurozone and most member states into recession in the last quarter”.
This technical recession is expected to be broad across demand components but also across countries, with a majority of Member States experiencing two consecutive quarters of contraction: a GDP contraction of 0.5% in the fourth quarter of 2022 and 0 .1% in the first of 2023 for both the EU and the eurozone.
Brussels expects the economy to grow again in the spring, as inflation begins to moderate, specifically 0.2% in the second quarter of 2023 in both areas, although it warns that there will be headwinds that will continue to hold back demand and economic activity will continue to be weak, meaning that GDP growth will be limited to 0.3% at the end of the year. Growth will accelerate in 2024, with an advance of 1.6% in the EU and 1.5% in the eurozone, according to the Commission.
