The International Monetary Fund (IMF) launches another notice about the economic growth projections with respect to which the Government has built the 2023 Budgets (PGE). The institution has reduced this Tuesday to almost half the forecast of increase in activity for the next year of the Executive, from 2.1% of the macroeconomic picture that Vice President Nadia Calviño defended last week, to 1.2%. Even so, the Spanish economy will double the growth of the eurozone average.
The IMF backtracks and warns that raising rates “too much” will cause a “prolonged recession”
They are about 10,000 million euros less than Gross Domestic Product (GDP.) Exactly 9 tenths of a difference, which are mainly the result of the clash between the IMF and the Government in the weight they give to the Recovery Plan, at a time of global slowdown by the blow of inflation and the uncertainty of the war.
A context in which Germany and also Italy would fall into recession due to the weakness of the industry, and France will remain stagnant, according to the same forecasts. In fact, from the Ministry of Economic Affairs they defend that “the Spanish economy will be well above the other large economies in the euro”. Without a doubt, it comes out better because of the lower risk of gas rationing.
Of course, the body directed by Kristalina Georgieva barely estimates an increase in investment in fixed capital by companies and families, which is directly favored by European funds, of 2.2%. Meanwhile, the Executive does project a growth of investment in capital goods of 9.5% and in construction of 8.4%.
This same disagreement regarding the weight of the Recovery Plan was shown by the Bank of Spain in updating its forecasts, which left GDP growth at 1.4% and its outlook for investment at 4.4% (see graph ).
And they are already the IMF, the Bank of Spain, the Independent Authority for Fiscal Responsibility (AIReF), which in its case estimates economic growth of 1.5% for the next year, and most of the analysis teams of private entities -Caixabank and BBVA remain at 1%- those who differ from the Government.
Labor market strength
What practically all these institutions agree on is the resistance of private consumption despite the damage caused by price increases to the purchasing power of families. And more importantly, on the strength of the labor market. The IMF considers that the unemployment rate will fall to 12.3% in 2023, in line with the Executive’s forecast, also included in the Budgets.
There will be “almost” 21 million employed in 2023, Calviño herself assured last Tuesday, at the press conference after the Council of Ministers in which the PGE project was approved. 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. The optimism of the Government is based “on the labor reform”.
This confidence in the labor market is crucial in the face of suffocating inflation, which if the Bank of Spain placed at 5.6% on average in 2023, the IMF moderates it slightly, to 4.9%.
“Any country can lose its way”
The institution itself admitted last week that the situation is very complicated. And he lamented that price increases have become “more persistent”, that the risk of a global recession is increasing and that, even with economic growth, price increases will feel like a crisis due to the blow to wages. For this reason, he warns that the key is to “avoid much greater pain”, referring to the decision of the Fed, the ECB or the Bank of England to make access to financing more expensive to curb activity and consumption and thus fight against the inflation, assuming the risk of contraction.
As Kristalina Georgieva told central banks in a conference at Georgetown University in Washington DC, raising interest rates “too much” will cause a “protracted recession.”
“Tightening monetary policy too much and too quickly, and doing so in a synchronized manner in all countries, could push many economies into a prolonged recession,” stressed the IMF director, who explained that “higher interest rates are damaging the domestic demand, including in real estate markets. But inflation has remained stubbornly high and widespread, which means central banks must continue to respond.”
“It is the right thing to do: to act decisively even when the economy inevitably slows down,” he continued. But he admitted that “this is not easy, and it will not be without pain in the short term”, to top it off by recommending that “the key is to avoid much greater and more lasting pain for everyone”.
The risks Kristalina Georgieva poses go beyond the consequences of a “protracted recession,” with rising unemployment the biggest threat to working families. The main risk is that, after three years of “shock after shock after shock”, inflation now means that “any country can lose its way”.
Among the solutions proposed by the IMF, in addition to warning central banks, it includes “a responsible fiscal policy, which protects the vulnerable, without adding fuel to inflation [es decir, sin bajadas de impuestos generalizadas, sino dirigidas a las familias y empresas que las necesitan]”. And, finally, he has called for “greater global cooperation.”