The Bank of Spain raises growth for 2023 to 1.6%

Madrid (EFE).- The Bank of Spain has increased its growth forecast for the economy by 0.3 percentage points in 2023, to 1.6%, while the average inflation rate has been reduced by 1.2 points, to 3 .7%, compared to previous projections, mainly due to the lower cost of the energy component.

According to the macroeconomic projections of the Spanish economy for the period 2023-2025, published this Wednesday by the entity, the gross domestic product (GDP) will recover its pre-pandemic level in the second half of this year.

The three-tenths increase in the GDP forecast for 2023 is explained by the higher-than-expected growth in 2022, by the improvement in the outlook for activity on a global scale (after the opening of the Chinese economy), by the intensification of the growth in affiliation to Social Security and the recovery of tourism activity.

All this, as well as the improvement in the perception of companies regarding the evolution of their billing in the first quarter of 2023, would offset the negative impact associated with the rise in interest rates, according to the entity.

Domestic demand (consumption and investment) would contribute one percentage point to GDP growth and external demand (exports and imports) would contribute 0.6 points.

The private consumption forecast decreases seven tenths and goes from 1.9% to 1.2%, an “appreciable weakness” that is based on “the still high inflationary pressures, the continued tightening of financial conditions and the lower savings buffers available”, details the Bank of Spain.

For 2024, the forecast growth is revised downwards by 0.4 percentage points, to 2.3%, while the corresponding to 2025 remains unchanged at 2.1%.

inflation down

The entity revises the average inflation rate downwards in 2023, to 3.7%, 1.2 percentage points less than previous projections, due to “the significant reduction in the prices of energy consumer goods in the last months”.

For 2024, average inflation is expected to stand at 3.6%, while in 2025 it would drop to a greater extent, to 1.8%.

Regarding the underlying component of prices (without counting energy or unprocessed food), its reduction is expected to be “slower” and the most recent dynamics suggest that “it will begin to moderate around spring”, to stand at 3, 9% on average this year and slow down to 2.2% in 2024 and 1.8% in 2025.

This “progressive slowdown” of core inflation will be sustained by the fading of the distortions that persist in global supply chains, the gradual impact of the tightening of monetary policy (rising rates) and the progressive pass-through of reductions in energy costs to the prices of other goods and services.

The unemployment rate barely changes and stands at 12.7%

The employment growth forecast (measured in hours) for this year rises three tenths, to 0.9%, while the unemployment rate only improves two tenths and stands at 12.7% in 2023, on 12, 3% in 2024 (one tenth more) and 12% in 2025 (stays the same).

Regarding the public deficit, it will drop to 4.1% of GDP in 2023, to 3.5% in 2024 and will rise again to 4.4% of GDP in 2025, while public debt will be reduced this year to 111.1 % of GDP, in 2024 at 108.8% and in 2025 at 109.9%.

The report clarifies that these projections were completed at the beginning of March, before the recent appearance of tensions in the international financial markets, and insists in the context of very high uncertainty, so there is a “downward risk in terms of economic activity”, although they appear “balanced” with respect to inflation.