The agency assures that extending aid to fuels would cut another six-tenths of the CPI, but that the negative impact would not come until 2024
The economy is weathering the storm better than expected by the major organizations a few months ago. The Bank of Spain estimates that GDP will grow by 4.6% this year, a tenth more than expected two months ago, although it is lowering its forecast for next year by the same rate to 1.3%.
This improvement for 2022 is due to the surprising increase in activity in the second half, with growth of 0.2% in the third quarter and 0.1% in the fourth, according to their forecasts, while only two months ago They even predicted they could fall into a technical recession by adding two consecutive negative quarters, something most organizations are now ruling out. Moreover, the slight downward revision of GDP growth for 2023 is due to the “spill-over effect” from the better year-end in 2022 and the weaker performance of the European economy next year.
The inflation figure for 2023 is the big surprise in the new macroeconomic forecasts published by the Bank of Spain on Tuesday. The body calculates that the harmonized CPI (index used to make comparisons between European countries) is 4.9%, a percentage that is still very high and far from the 2% set by Brussels, but seven tenths lower than the forecast two years ago, months (5.6%) due to the extension of most of the government’s anti-crisis measures.
The regulator also indicates that inflation will amount to 3.6% in 2024, more than one and a half points above the previous forecast, precisely because the measures will expire in 2023, which will mean an upward effect at that time. Prices will not fall below 2% until 2025, namely, according to his calculations, at 1.8% within two years.
The impact of the measures taken by the government to curb the price increase depends on the assumptions. The Bank of Spain calculates that if measures such as the reduction of VAT on electricity and gas or the limitation of the rent increase to 2% are extended in 2023, but the fuel bonus ends on December 31, the CPI next year will be 4.9. %. However, if the gasoline support is extended to 2023, inflation would fall by six-tenths, although the negative impact would not come until 2024.
The Bank of Spain indicates that these measures have a “temporary” effect on prices and have a significant impact on fiscal policy, making them contrary to Spanish monetary policy.
One of the elements that is positively surprising is the evolution of employment in this context of crisis. The unemployment rate will end the year at 12.8% and only a tenth of a point higher in 2023, according to Bank of Spain calculations, which indicate “some stability in employment growth” with “significant momentum” at such a moment. .
Thus, the unemployment rate will fall to 12.2% in 2024 and 12% in 2025, with a better evolution than estimated in the previous forecasts of the organism.
In addition, the agency emphasized that the good evolution of employment has an impact on household consumption, which supports the economy. They brought up some data from a report that has not yet been published, which shows that workers on permanent contracts spend 81% of their household income on expenses, compared to 72% that temporary workers spend. In addition, the conversion of a temporary contract into a contract for an indefinite period means a spending increase of 20% in the next two quarters.
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.
