The agency forecasts that inflation will continue to rise in the coming years, still at 4.8% by the end of 2024, and calls for support measures to be reviewed “periodically” to ensure their effectiveness
The Spanish economy will end the year better than expected by both the organizations and the government itself. According to the Organization for Economic Co-operation and Development (OECD), Spain will grow at 4.7% this year, three-tenths above the previous forecast of 4.4%, which coincides with that of the executive. Data collated in the world forecast report (World Economic Outlook) released Tuesday shows that Spain will experience the biggest downturn next year, when the economy grows by just 1.3%, two-tenths below the previous forecast and one point under calculations just six months ago, when they predicted 2.2% for 2023.
Inflation will be the cause of this economic downturn next year as it will continue at very high levels and this will have an impact on household consumption, despite the savings accumulated during the pandemic, the report explains. “High inflation will curb household purchasing power and the economic slowdown of major trading partners will affect exports,” the agency warns in its note on Spain.
Inflation will reach its maximum of 8.6% at the end of this year. In 2023 and 2024, the rate in Spain will moderate, but it will remain very high, both years at 4.8%. It is worth emphasizing that core inflation (not counting energy or fresh food) will go from 4% this year to 4.8% in 2023 and will decline to 3.7% in 2024, a still very high level compared with the rates of 0.6% occurring in early 2021.
However, the inflation rate for this year (8.6%) is half a point lower than predicted by the OECD in its previous forecasts, which means that household consumption will also increase more than expected. For example, private consumption will grow by 2% this year compared to the forecast of 0.1%. This rate will gradually stabilize at 1.4% until the end of 2024.
Household consumption is also holding up thanks to employment, which continues to grow despite the economic slowdown. For example, the OECD expects the unemployment rate to end the year at 12.9%, seven tenths lower than forecast six months ago. The same percentage of 12.9% will be one point less than budgeted next year, and will fall slightly to 12.7% in 2024.
To alleviate the most negative consequences of the crisis, the OECD is proposing to Spain that the social partners reach an agreement (the so-called ‘incomes pact’) that helps to “share the burden of rising prices” and reduce the risk of “a spiral of wages and prices.”
In this sense, he believes that the fiscal measures proposed by the government to alleviate the price increase should be “temporary” and target the most deprived. In addition, Spain proposes to “revise the aid periodically”. This will “guarantee” that they target those most exposed to the crisis and that they are compatible with deficit and debt reduction objectives, as well as with environmental objectives. Likewise, the organization warns that the “timely and effective” use of European Next Generation funds will be “key” to support business investment, increase long-term productivity and deliver the green transition.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
