Saturday, November 27

Brussels cuts Spain’s growth in 2021 to 4.6% and places it below the European average

Brussels cuts Spain’s growth expectations in 2021 by more than one and a half points: from the 6.2% announced in July to 4.6% of the autumn forecasts published this Thursday. This reduction also means leaving Spain, which was at the head of European growth, below the average of 27, which stands at 5%. Of course, for the next two years, Brussels does foresee a growth in Spain that is higher than the European average. Thus, the European Commission believes that Spain will grow 5.5% in 2022 –4.3% on average for the EU– and 4.4% in 2023 –2.5% in the 27–, so Spain will not will recover its pre-pandemic economic levels until the first quarter of 2023.

“In Spain, growth of 4.6% is projected in 2021, below our summer expectations”, acknowledges the European Commissioner for Finance, Paolo Gentiloni: “However, the GDP of Spain is expected to remain on a path of very strong growth during the next two years thanks to the implementation of the Recovery and Resilience Plan. It is projected a growth of 5.5% in 2022 and 4.4% in 2023 “.

The data published this Thursday truncate the upward evolution. If, in May, Brussels increased its forecasts for 2021 by three tenths, from 5.6% to 5.9%, in July it rose another as many, to 6.2%.

The Government, meanwhile, maintains its own, 6.5%, awaiting its review, after having closed 2020 with a fall in GDP of 10.8% due to the health, economic and social crisis of the pandemic of the coronavirus.

Thus, Spain goes from being one of the countries that was going to grow the most this year in the European Union, to growing below the average of 27. In any case, the outlook drawn by the Community Executive for Spain is optimistic, although it warns of risks for the European economy.

“Although the impact of the pandemic on economic activity has weakened considerably, COVID-19 has not yet been defeated and recovery is highly dependent on its evolution, both within and outside the EU. In light of the recent increase of cases in many countries, the reintroduction of restrictions that affect economic activity cannot be ruled out. In the EU, this risk is particularly relevant in Member States with relatively low vaccination rates. ”

According to Brussels, “economic risks are also related to the potentially prolonged impact of current restrictions and supply bottlenecks. Inflation may turn out to be higher than expected if supply restrictions are more persistent and wage increases are higher than expected. of productivity are passed on to consumer prices. ”

“Resistance of the Spanish labor market”

“After recording the deepest contraction in the EU in 2020,” states the European Commission, “the economic recovery is gaining ground in Spain. The implementation of the Recovery and Resilience Plan will maintain the economic momentum and stimulate public and private investment. The labor market has shown remarkable resilience compared to previous crises and the unemployment rate is expected to fall below its pre-crisis level in 2023. Inflation has risen in 2021 and is expected to remain high until mid- 2022. The public deficit is expected to improve to 5.2% in 2022 and 4.2% in 2023, due to a good performance of revenues and the favorable macroeconomic scenario. ”

Brussels explains that the coronavirus containment measures, still in force, have “weighed down economic activity in the first half of 2021, with a moderate contraction of GDP in the first quarter (-0.6%), followed by a softer rebound than expected in the second quarter (1.1%) “.

“Successful vaccination”

Since the lifting of the state of alarm in mid-May, “backed by the success of the vaccination campaign, the Spanish economy has entered into a constant recovery,” says Brussels: “The service sector, including activities related to leisure and tourism, are supporting the recovery. Job creation has accelerated in recent months and confidence indicators remain very high for both manufacturing and services. Against this background, real GDP is expected to accelerate in the second half of the year and reach an annual growth rate of 4.6% in 2021, with private consumption as the main driver “.

Brussels predicts that “after the rebound in the second half of 2021, the Spanish economy will continue to grow in 2022 and close the gap with its pre-pandemic GDP level in the first quarter of 2023.” That is, Spain will not recover its pre-pandemic economic levels until the first quarter of 2023, later than other European countries, such as Germany, France and Italy, which will achieve it before the end of 2022.

The European Commission expects that “the growth of private consumption will remain strong with the momentum of savings accumulated during the pandemic and the recovery of employment.” And he also trusts a large part of the recovery to European funds: “The recovery plan will boost public and private investment. The forecast includes expenses financed with transfers from European funds for an amount of 5% of GDP from 2019 until the end of 2023 The external sector is also expected to contribute to GDP growth, thanks to the gradual normalization of international tourism. Economic activity is expected to continue expanding in 2023, still driven by spending and reforms financed by the recovery plan. although quarterly growth rates are expected to moderate. ”

In general, GDP is expected to grow 5.5% in 2022 and 4.4% in 2023. Although uncertainty has decreased significantly thanks to the control of the health situation at the national level, there are still several risks, “he says Brussels: “The persistence or resurgence of the pandemic in other countries could influence economic growth, in particular by delaying the full recovery of the tourism sector. Supply-side bottlenecks and energy and transportation prices could delay recovery in the short term, while labor market mismatches could affect the implementation of green and digital investments connected to the recovery plan. On the contrary, the implementation of European funds could generate more powerful pull effects and a stronger impact of the reforms on potential growth. ”

The European Commission notes that inflation reached 2% in April and 4% in September, due to the rise in gas and electricity prices. Thus, he expects these prices to remain at record levels until the second quarter of 2022, despite some measures taken by the Government to contain them, including the reduction of VAT.

In addition, the Community Executive considers that “the indexation of pensions with the CPI will exert some upward pressure on core inflation. However, the Spanish labor market should help contain wages and limit the effects on inflation. As a result, Current inflationary pressures are expected to begin to wane in the second half of 2022. Overall, inflation is forecast to reach 2.8% in 2021, moderate to 2.1% in 2022, and decline to 0.7% in 2023 due to negative base effects on energy prices.In turn, core inflation is projected to increase from 0.6% in 2021, to 1.5% in 2022 and decrease to 1.3% in 2023 “.

The role of ERTE

Brussels also talks about ERTEs: “They notably mitigated the destruction of jobs during the initial stages of the COVID-19 crisis and have paved the way for a rapid recovery in the labor market. Both the number of workers and the unemployment rate. have recovered approximately to their pre-pandemic levels, although around 200,000 employees remain subject to ERTE (1% of total employment). The Spanish Government plans to replace the current extraordinary regime with a new structural one, with a higher focus on reconversion and improvement of workers’ skills. The unemployment rate is expected to decrease in the next two years, from 15.2% in 2021 to 13.9% in 2023 “.

According to the European Commission, “the pandemic and the measures adopted by the Government to overcome the crisis caused an exceptional deterioration in Spanish public finances.”

Thus, “the public administration deficit reached 11% of GDP in 2020, and the debt / GDP ratio increased by almost 25 percentage points. With the resumption of economic growth in the second quarter of 2021, the public deficit began to decrease thanks in particular to the increase in income tax and VAT receipts. ”

In this way, the Community Executive foresees that “the gradual elimination of several measures introduced to contain the impact of the pandemic and the solid behavior of income will reduce the deficit to 8.1% of GDP in 2021. Debt, which will increase by 120.6% of GDP in 2021, is expected to decline gradually from 2022. A supportive macroeconomic scenario, partly due to the implementation of European funds, and the action of automatic stabilizers, will help the debt ratio / GDP decrease to 118.2% and continue to improve the balance, with a deficit of 5.2% in 2022. Sustained economic growth and containment of total current spending will be the main drivers of a further reduction in the public deficit, until 4.2%, and the debt ratio up to 116.9% in 2023 “.

Quick recovery

Brussels claims that the EU economy is recovering from the pandemic recession faster than expected. And “despite growing headwinds, the EU economy is projected to continue to expand over the next two years, with a growth rate of 5%, 4.3% and 2.5% in 2021, 2022 and 2023, respectively, growth rates in the euro area are expected to be identical to those of the EU in 2021 and 2022, and at 2.4% in 2023. This outlook depends largely on two factors: the evolution of the COVID-19 pandemic and the pace of supply adjustment to the rapid change in demand trend following the reopening of the economy. ”

At nearly 14% in annual terms, the EU’s GDP growth rate in the second quarter of 2021 was the highest on record, as high as the unprecedented drop in GDP in the same period last year, during the first quarter. wave of the pandemic. The EU economy returned to its pre-pandemic production level in the third quarter of 2021 and went from recovery to expansion.

Thus, Brussels expects that domestic demand will continue to drive this expansion: “Improvements in labor markets and a projected decline in savings should contribute to a sustained pace of consumer spending. The implementation of European funds is also beginning to play a role. important role in promoting public and private investment “.

However, “bottlenecks and global supply disruptions are weighing on activity in the EU, particularly in its manufacturing sector. Furthermore, after having fallen dramatically in 2020, energy prices, particularly energy natural gas, have risen at a tumultuous rate over the last month and are now well above pre-pandemic levels, weighing on consumption and investment. ”

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