The GDP (gross domestic product) of Spain grew by 6.4% in the first quarter, compared to the same period in 2021, due to the push to end restrictions due to the coronavirus pandemic. However, economic activity increased by only 0.3% compared to the fourth quarter due to the impact of the omicron variant first, and after the war in Ukraine and the strike in the road transport sector.
The IMF cuts Spain’s growth forecast by one point to 4.8%, but leaves it ahead of the European economies
The interannual increase in GDP advanced by the National Institute of Statistics (INE) is 0.1 percentage points lower than expected on average by experts, who anticipated 6.5% and point to private consumption as one of the main accelerators, with an advance of close to 8%, although family spending suffered a 3.7% drop compared to the final period of 2021. This is the first contraction since the first quarter of 2021.
Private consumption initially damaged by contagion by omicron and definitively slowed down by the spike in inflation caused by the invasion that Russia began at the end of February. A crisis that has triggered the prices of electricity and fuel due to the disturbance caused by the conflict in the international oil and gas markets, raising production and transport costs and damaging the purchasing power of households, especially poorest.
This energy shock has inevitably spread to the entire shopping basket -the Consumer Price Index (CPI) accelerated by 9.8% in March and another 8.4% in April- and has forced families to throw of savings accumulated during the pandemic, partially sustaining the rebound in consumption in year-on-year terms, although reducing it compared to the last part of 2021.
A saving that acts together with the Shock Plan approved by the Government, with a discount of 20 cents per liter on fuel until June as one of the most important measures.
Statistics has explained that the advance of data for this first quarter has been made from indicators that offered data until February, although some estimates referring to the month of March have been incorporated, based on administrative data and other additional sources. However, it warns that future revisions of the data for the first quarter could be larger than usual due to the economic context and the “sudden” changes that are currently being experienced.
Pre-pandemic activity will not recover until 2023
Economic activity grew between January and March at the highest year-on-year rate since the strong rebound in the second quarter of 2021, and is still just under 3 percentage points from the pandemic price level.
In fact, according to the forecasts for all of 2022, from 4.8% of the International Monetary Fund (IMF) to 4.5% of the Bank of Spain, the recovery will not be complete until next year.
“The main risk to growth comes from inflation, due to its impact on the real spending capacity of households, business margins [capacidad de obtener beneficios de los ingresos] and on the foreign sector”, says Bankinter’s team of analysts.
“All forecasts suggest high inflation, but not in 2023,” defended Pedro Sánchez this Monday. “Hopefully it will be a sufficiently conjunctural rise so that we will not see relevant inflation in the coming years,” he continued, and even predicted that between 2022 and 2023 there will be an “abrupt drop” of 2 points.
The Funcas analysis center sees the CPI in 2022 at 6.8% on average, the Bank of Spain at 7.5% and the Independent Authority for Fiscal Responsibility (AIReF) at 6.2%. That, without including the cap on the generation of electricity with gas to lower the electricity bill, recently approved by the European Commission. Although these projections also do not take into account a feared cut in energy supply from Russia.
“The engines of growth in 2022 will be investment, given the start-up of projects from European funds and the progressive recovery of international tourism. In the opposite direction, the downward revision of private consumption acts, and a contribution to the aggregate growth of the foreign sector lower than previously expected, due to the impact of the global slowdown, bottlenecks and the deterioration of the energy balance”, condensed in Bankinter.
The importance of European funds
This year alone, nearly 25,000 million should be allocated to projects financed by European funds within the framework of the Recovery Plan, according to the budgets of the Executiveafter 11,000 million in 2021.
However, the contribution of these funds to economic recovery is less due to the impact of the war on inflation and bottlenecks in world trade, among other reasons.
The Independent Authority for Fiscal Responsibility (AIReF), dependent on the Ministry of Finance, recently warned that “the impact assigned to the Plan stands at 1.8% in 2022 [desde el 2,5% estimado en octubre de 2021] because the resources are going to reach the economy in a substantially more adverse context”.
This scenario is “characterized by high inflation, bottlenecks and labor shortages in some essential sectors for the development of reconstruction funds such as the automobile, construction or digitization,” explains AIReF.
More specifically, last year the Authority calculated “a high multiplier” for the absorption of money from the Recovery Plan, of 1.2 times, and now it reduces this ability to contribute to economic growth to 0.9 times.
“Although we think that the allocation in 2022 will be full, as budgeted,” adds the institution, which regrets that “in 2021, the boost from these funds was practically nil due to delays in execution.”