Spain almost quadrupled the economic growth of the Organization for Economic Cooperation and Development (OECD) as a whole in the second quarter. The institution itself has confirmed this Monday that the GDP (Gross Domestic Product) increased in our country by 1.1% between April and June, compared to the average of 0.3% of the 38 states that comprise it.
The Bank of Spain rules out a recession “in the immediate horizon”
The OECD also points out that Germany recovered the level of activity prior to the pandemic at the end of this second quarter, the last economy of the seven largest (the G-7) that had yet to achieve it. Spain has not yet achieved it, and the expectations are that it will not do so until the end of 2023 or the beginning of 2024, after the recovery slowed down due to the inflation crisis and the uncertainty caused by the Russian invasion of Ukraine.
This delay in Spain’s reconstruction after the historic COVID shock is explained by the greater GDP in the services sector, and specifically in tourism, which precisely this year has experienced its first full high season since 2019, without restrictions, with the obstacle posed by the general rise in prices.
Even so, our country leads the growth estimates for the end of this 2022 and 2023, and could be the only major economy in the eurozone to escape the recession, which threatens Germany dangerously.
“In July, the PMI index for the manufacturing sector stood at 48.7 points, its lowest level since May 2020, and points to a drop in activity in the sector (record below 50, the indicative level of growth). Thus, the industry suffers from the strong increase in prices, greater uncertainty and a deterioration in the economic outlook. In contrast, the equivalent indicator for the services sector remained practically unchanged, at 53.8 points (54.0 the previous month) and well above the indicative growth level. The good performance of the sector reflects the boost offered by the reopening of the economy and the recovery of the tourism sector”, explains the Caixabank analysis team.
Bank of Spain: “We do not see a recession”
“We do not see a recession in Spain on the immediate horizon, far from it. We are going to grow 4% this year and by 2023 rates are expected to be around 2%, point up, point down”, Margarita Delgado, deputy governor of the Bank of Spain, recently stated.
The institution enters with an optimistic vision in the debate on the risk of a contraction in economic activity since the last part of this 2022, which has been exacerbated during the summer by the suffocating rise in prices month after month, the end of the era of minimum interest rates, which has been raising financing costs for companies and families, and due to the disturbance and general uncertainty caused by the Russian invasion of Ukraine, specifically regarding energy and industrial raw materials.
The end of the pandemic maintains the background of the economic recovery. A reconstruction after the COVID shock favored by historical plans and stimuli, now continued by shock measures in response to the war and the energy crisis. And that is based mainly on the explosion of demand with the end of the restrictions, the good moment of the labor market and public and private investments.
“Of course, there is no such thing as zero risk,” Margarita Delgado clarified. “The uncertainty is there, we cannot rule out that some quarter is not entirely positive, that the potential shutdown of Russian gas supply to Europe, fundamentally to Germany, could have a negative impact on economic growth,” she explained.
“Spain has a better starting point because it is not expected that there will be an energy shortage. Europe depends on Russian gas, some countries more than others, such as Germany or even Italy. But for better or worse we live in a global world. And although our exposure as a country to the Russian economy is very small, beyond some commercial elements, the rise in the price of energy means that all inputs end up on the rise, which is why inflation is rising in Spain as well”, explained the deputy governor of the Bank of Spain.