The BBVA study service projects that the Spanish economy will maintain growth rates of around 5% also in 2023, lengthening the country’s upward cycle after the rise in GDP this year and last year was less expansive than initially estimated. This follows from the reportSituation Spain’ of BBVA Research, released this Thursday, which lowers its forecast for the end of 2021 by one tenth, to 5.1%; it maintains its latest estimate for 2022 intact, at 5.5%; and points to a growth of 4.9% in 2023. Beyond the forecasts on GDP growth and its components, BBVA Research highlights in its report that employment has already returned to pre-crisis figures, and it is expected that it continues to increase until it is 4.4% above the occupancy rate of the last quarter of 2019 in the fourth quarter of 2022.
Your calculations for the next financial year significantly exceed the forecasts of the Government and the Savings Banks Foundation (Funcas), which coincide in expecting an increase of 3.5%, and are also above the predictions of the Bank of Spain, which point to a rise of 3.9% . If this scenario were fulfilled, the level of activity would return to pre-pandemic levels at the end of this year or the beginning of the next.
The available data analyzed by the report suggest that the lower quarterly growth in GDP in the third quarter of 2021 (2.6% quarterly, below the 4.0% estimated three months ago), could have been offset by higher growth than expected in the last quarter of the year (2.4% compared to 0.6% quarter-on-quarter). The growth of household spending would be around 4.5% in 2021, less than forecast three months ago, due to the deterioration in the purchasing power of families and the disruptions in production chains. But in 2022, private consumption could accelerate to around 5.5%-6.5%, favored by the increase in household disposable income, more contained inflation, the absorption of part of the accumulated savings and the boost from European NextGeneration funds.
“The reduction in health uncertainty and the increase in mobility will boost private consumption and exports of tourist services and, therefore, economic recovery in the short term,” says BBVA’s research service. Later, as the months go by, it is expected that investment will gain strength, supported by the stabilization of raw material prices, the resolution of bottlenecks in production chains, the execution of the NextGenerationEU funds (NGEU ) and the maintenance of an expansive monetary policy. The study was carried out by Jorge Sicilia, director of BBVA Research and chief economist at BBVA; Rafael Doménech, head of Economic Analysis; and Miguel Cardoso, chief economist for Spain. The greatest risk continues to be the pandemic, although if it is confirmed that the impact on the economy decreases with each new wave of infections, the dynamism could be greater than anticipated in the report published today.
The private consumption continued its recovery, but at a slower pace than expected in 2021. On the one hand, growth in spending on services was considerable, driven by greater mobility, improved employment and a reduction in the high savings rate . This is shown by the data on spending on services with cards issued by BBVA or at BBVA POS during the fourth quarter of 2021: it would have been 72% higher than that recorded in the same period of 2019. However, the purchase of goods would have increased slowed down by the exhaustion of the momentum that confinement meant for some of them -as in the case of the food sector, durable goods, or furniture-, due to the unavailability of some goods, affected by interruptions in production chains, due to the lack of containers or the increase in the price of fuel -as in the case of the sale of automobiles-. Finally, the increase in the cost of electricity would have forced families to redirect resources towards paying for energy, to the detriment of other services and some goods.
The other component of domestic demand that did not meet expectations was housing investment. Although sales and prices maintain a very positive evolution, it does not end up translating into an increase in new construction or rehabilitation permits. The new BBVA Research report assures that the rest of the GDP components would have shown a variation in line with expectations, highlighting the growth of non-residential investment and exports. Regarding the first, although some signs of the fiscal impulse that is to come are beginning to be seen, the execution of the NGEU funds is well below expectations, and the lack of security in the supply chains could also be playing a relevant role. companies, the increase in the cost of transport or the increase in the price of electricity and its permanence over time. Once the execution of the NGEU funds gains momentum, the growth engine of the Spanish economy will shift from private consumption to investment.
On the export side, an excellent evolution of sales of goods abroad is observed, which already exceed pre-pandemic levels, a trend that the BBVA research service expects to continue. In contrast, service exports continue to recover, but from low levels, and still have a long way to go to reach 2019 figures.
This perspective, together with the fact that an atypically high part of the growth in domestic demand is not being satisfied by domestic production, could lead to the contribution of foreign demand to growth being negative in the coming years. In fact, the advancement of investment (NGEU), particularly focused on promoting digitization and environmental sustainability, can significantly increase dependence on imports if Spanish companies do not use the opportunity offered by the NGEU to transform and/or grow up.
On the other hand, growth will be accompanied by inflation levels of around or above 2%, which has not been consistently recorded since before the global financial crisis. From the BBVA studies service they explain that this would occur in a context where the current account is expected to show a practical balance in 2022 -partly as a result of the cyclical reduction in the public deficit, which would be below 7% of the GDP in 2022, thanks to the increase in the level of tax collection – and a moderate imbalance in 2023.
The covid pandemic continues its passage through the world and before the appearance of the new Omicron variant, the economy has presented some effects that are explained by the uncertainty caused by not yet having enough information to determine how serious this new strain of the virus is. .
According to BBVA Research, the most important risk scenarios are those in which health uncertainty remains high. However, inflation and the action of central banks are beginning to play a greater role. Although the resolution of the bottlenecks in the industry and the recomposition of spending towards services promise to eliminate some of the factors that have driven price growth, other risks are being warned. On the one hand, the loss of purchasing power could lead workers to demand wage increases. Until now, most companies have been able to continue contracting without transferring it to their prices, relying on a mixture of public aid, financing and reduction of margins. However, if wages are added to the increase in other costs, they could begin to contribute to the increase in inflation. On the other hand, the fiscal boost of programs such as the NGEU in Europe or the infrastructure program in the US promise to increase the demand for goods necessary to promote digitization and environmental sustainability, which may add pressure on their prices.
Central banks are aware of these scenarios and in response to further persistence of elevated inflation, have moved from caution and patience to action. However, and unlike what is already happening in the US, the increases in interest rates in Europe will take time to arrive and will not occur in 2022. Even more so, given the strong increase that has been observed in public debt and the increase in credit to the private sector with a State guarantee during the pandemic, there will be pressure to limit the rise in the cost of financing. For this reason, BBVA considers it essential for Spain to differentiate itself positively, accelerating the execution of NGEU funds and successfully implementing reforms that comply with the recommendations of the European Commission.