Monday, December 5

The Bank of Spain lowers GDP growth to 1.4% in 2023 in the face of “high” uncertainty due to the war


The Bank of Spain subtracts nearly 9,000 million euros from the growth forecast for economic activity with which the Government has carried out the General State Budget (PGE) project. The institution lowers the estimated increase in GDP (Gross Domestic Product) to 1.4%, from the 2.1% projected by the Executive this week. A forecast that is closer to that of the AIReF (Independent Authority for Fiscal Responsibility), which is 1.5%.

The Government’s 4.4% growth forecast in 2022 reveals a slowdown in the second half

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The Bank of Spain justifies its most pessimistic estimate in the drop in consumer and business confidence in the face of “high” uncertainty due to the war and the energy crisis. It also calculates a lower impact of the Recovery Plan compared to what it considers the macroeconomic framework defended this Tuesday by Vice President Nadia Calviño, after the Council of Ministers. And, finally, he warns of suffocating inflation that he sees at 5.6% on average over the next year.


The figures presented by the Bank of Spain and the Government coincide in projecting a strong resistance of private consumption despite the damage caused by inflation to the purchasing power of families. Both expect growth of 1.3% in 2023, similar to that of 2022.

However, they clearly differ in the impact of the Recovery Plan. While the Executive foresees a strong increase in investment in capital goods and construction, favored by European funds, the institution headed by Pablo Hernández de Cos considers that it will be lower, if compared to the figure for investment in fixed capital, since they do not use the same detail in their reports (see graph above).

There is also disagreement on the increase in public consumption, which the Bank of Spain believes will not advance, compared to the 0.4% increase reflected in the Budget project. And in the foreign sector, that the institution based on Calle Alcalá in Madrid does not see it as strong as the Government.

“The persistence of high inflation rates, the tightening of financial conditions and prolonged supply distortions have led to a worsening of the short-term outlook,” acknowledges the Bank of Spain in its outlook report, published this Wednesday.

“Beyond the most immediate quarters, the economic evolution depends crucially on the developments of the war in Ukraine. An eventual easing of the uncertainty generated by the conflict should give rise to an improvement in activity, in a context in which some incipient signs are beginning to appear that the bottlenecks that have afflicted world production and transport could be beginning to subside and that inflationary pressures could be reaching their peak, as indicated by a certain reduction in the price of most raw materials (after having reached very high price levels)”, he continues.

Loss of dynamism in Spain

“In Spain, the signs of a loss of dynamism in economic activity have multiplied in recent months. The lifting of most of the restrictions in the face of the pandemic, which had already boosted activity in the second quarter, has favored the continuation of the reactivation of international tourism in the summer months. However, the growth rate of Social Security affiliation, whose vigor had surprised on the rise during the first half of the year, slowed down in the third quarter”, observes the institution.

“Furthermore, the rise in energy prices, which has been gradually spreading to a growing proportion of the goods and services in the household consumption basket, has reduced the purchasing power of these agents, which has translated into a weakening of the indicators that measure their spending. Likewise, the high cost of energy raw materials and insecurity regarding supply are affecting the production of the most electro-intensive industries. As a whole, this decrease in industry and household income is also leading to a reduction in the demand for the production of the rest of the branches”, he adds.

Suffocating inflation in 2023

Regarding inflation, “it is the government’s priority” in the short term. And Calviño defended this Tuesday that it is “imported inflation”, originating in energy prices and exacerbated by the depreciation of the euro, which in Spain has managed to moderate with the three packages of measures approved so far (see scheme included in the Budgets).



According to his thesis, after the relaxation of 9% of the general CPI in September, the curve will continue to trend downward in the coming months because in our country, although the rise in electricity, gas and fuels has been transferred to food, not it has done so to the rest of company costs (mainly salaries), so there is no such thing as the dreaded second-round inflation (the impoverishing spiral of company prices/earnings, returns and salaries).

On the contrary, the Bank of Spain still sees a suffocating inflation in 2023, of 5.6% on average. And the AIReF also charged this Tuesday against this position. “The energy crisis has led to a deterioration in the growth prospects of the main advanced economies and an increase in gas prices higher than that contemplated in the technical assumptions of the Government’s scenario. In particular, the assumptions about the growth of the European economies in the Government’s scenario come from the forecasting exercise that the ECB prepared at the beginning of September, just before the cut in the Russian gas supply materialized”, contemplates the institution.

“Since then there has been a notable deterioration in growth prospects in the United States, China and all European economies as a result of the Russian gas supply cutoff and uncertainty about the course of the war in Ukraine, as they reflect the most recent forecasts of the OECD and other public and private institutions”, he adds.

“Under certain assumptions, about which there is a very high degree of uncertainty, economic activity could show greater dynamism as of next spring. Specifically, throughout 2023, a progressive moderation of the prices of energy and food goods is contemplated in accordance with the paths of the futures markets—, a very gradual mitigation of the bottlenecks and the economic consequences of the war in Ukraine, and a relatively contained pass-through of past price and cost increases to final product prices and wage claims. A greater relative deployment of investment projects associated with the European Next Generation program would also contribute to this economic reactivation in our country [el Plan de Recuperación]”, concludes the Bank of Spain.

In fact, for 2024, when the full recovery of GDP prior to the pandemic is postponed, the forecast is for activity growth of 2.9%, and inflation already under control, at 1.9% of half.




As can be seen in the last graph, the Bank of Spain’s macroeconomic forecasts and, in general, are very volatile in times of “high” uncertainty, such as the current ones.

Labor market strength

Together with the resistance of household consumption, the macro table that accompanies the Budget project offers a very positive view of the labor market. An optimism that contrasts with the slowdown in economic growth due to the damage caused by inflation, the rise in interest rates by the European Central Bank (ECB) and the uncertainty due to the war.

According to the Government’s forecast, there will be “almost” 21 million employed in 2023 and the unemployment rate will fall to 12.2% on average over the next year. This implies the creation of just under a million jobs despite the fact that one of the most important sectors, such as tourism, is already close to the record figures of 2019, as admitted by the First Vice President and Minister of Economic Affairs, Nadia Calviño, this Tuesday.

The optimism of the Executive is based “on the labor reform” and on the estimated growth of private consumption of 1.3%, although inflation is hitting and will continue to damage the purchasing power of families. In the own forecast of increase in GDP (Gross Domestic Product) of 4.4% for this 2022, an almost dry stop in economic activity is admitted in the second half, given the high year-on-year rate at the start of the year.

“Despite the favorable behavior of employment, the deterioration in the purchasing power that Spanish households are registering as a consequence of the fall in real wages is high. In the first half of 2022, there has been a contraction in compensation per real employee of close to 6%, thus exceeding the contraction observed in the fourth quarter of 2012, of 5.2%, ”said AIReF on Tuesday, which depends on the Treasury.

The positive scenario of the Government also drinks from the strong increase in investments in capital goods and in construction “due to the deployment of the Recovery Plan”, according to Calviño herself. In fact, the economic vice president admitted that without European funds “there would be a drop in investment.”

“Unlike the Government, AIReF does not consider that the Plan could have had a high impact on the expectations of the agents [económicos] nor does it incorporate in its estimates the potential impact associated with the reforms implemented and, in particular, the labor reform, until a complete diagnosis is available based on the evidence of its effects on the job creation capacity of the economy and the nature of the employment created”, they criticize from the Tax Authority.



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