Brussels (EFE) than expected in their latest projections.
The better performance of the Spanish economy this year will be based on the recovery in consumption and the maintenance of investment, while there are “downside risks” for growth, related to interest rate rises and their impact on households with fixed-rate mortgages, and for inflation, due to possible higher-than-expected salary increases.
In its Spring Macroeconomic Forecasts, which update the calculations made in February, the Community Executive also forecasts that the Spanish economy will expand by 2% in 2024, the year in which the average increase in prices will be 2.7%, four tenths more than expected.
Specifically, Brussels believes that GDP will increase by 1.9% this year thanks to a greater “carry-over effect” from 2022 and the behavior of consumption, which will escape the “contraction” of the last two quarters due to the “continued strength of the labor market and real income gains for pensioners and workers with minimum wage”.
On the other hand, the deployment of European recovery funds will sustain investment levels, particularly in non-residential construction, while the “complete” recovery of international tourism after the pandemic and the decline in energy prices will improve the competitiveness of the sector abroad.
Consequently, the Spanish economy will recover the level of GDP prior to the pandemic between the second and third quarters of 2023, just before accelerating, supported by a “revitalized” domestic demand and a greater contribution from investment.
“The expansion of 1.9% in 2023 is above the EU average thanks to the execution of the recovery plan and a very strong labor market,” explained the Commissioner for the Economy, Paolo Gentiloni, at a press conference.
Core inflation will remain high
On the other hand, Brussels estimates that inflation in Spain will continue to fall thanks to the lower price of energy and also to the extension of most of the Government’s measures, such as the reduction in VAT on some foods.
His projections point to an average inflation of 4% this year, four tenths less than what he projected in February, and 2.7% in 2024, four tenths more than his previous calculation.
However, the community authorities warn that inflationary pressures on goods and services other than energy and food, which were already “increasingly visible” at the end of 2022, will continue to weigh on underlying inflation, which will remain “high” in the next years.
In addition, they detect “upward risks” derived from a “faster salary adjustment” from the “extension of inflation clauses” and the 8% increase agreed to the minimum wage, which “could feed even higher underlying inflation ”.
Even so, Brussels estimates that wages will grow in nominal terms, but they will do so “marginally below average inflation”, deepening the “significant” loss of purchasing power in 2022.