Government shock plan Funcas predicts record inflation cut by 1%

The government insisted on Tuesday that its top priority was to reduce the uncertain inflation, which INE promoted this Wednesday and accelerated to 9.8% in March, compared to the same month last year. A scenario in which the executive has just approved a war impact response plan that seeks to curb the rise in energy prices and the blow it places on household pockets and company costs and, consequently, the economy. Growth.

And Funcas experts believe that these “short-term and palliative” shock measures are unlikely to alleviate average inflation by one percentage point in 2022, which will go up to 6.8% if the war in Ukraine ends in the second quarter, with a loss of purchases. Power for families of 16,700 million.

An hour after the March CPI preliminary data hit a record high of 7.6% in February 1985, the Mint Analysis Center released its economic forecasts for 2022 and 2023, warning of huge uncertainty that war would break out in Ukraine after the invasion. Russia’s electricity, gas, fuel, industrial raw materials, such as aluminum or steel, and grain price disruption, in which both countries are major players globally.

In its central scenario, Funkas estimates that the impact of the war will lead to 4.2% GDP growth in 2022 (1.4 percentage points lower than the previous forecast) and 3.3% in 2023 (two tenths less). The path of increased economic activity sustained by the strong recovery that came after 2021, following the pandemic shock, and which is reflected mainly in the first quarter, as it forecasts that GDP will grow by only 1.1. % In the remaining three quarters of 2022, “although termination will be avoided.”

In this context, according to the CPI of the war, household income will decrease from 767,300 million euros to 750,600 million this year, which means a reduction in purchasing power of 16,700 million.

“Despite the loss of strength, domestic demand will be the main driver of growth, with 3.8 and 3.2 points in 2022 and 2023, respectively,” they explain in Funcas.

“In short, the expansion will continue as a result of maintaining three factors: the reduced demand accumulated during the pandemic, which allows us to partially absorb the impact of inflation on household incomes; Rise in tourism (unchanged from previous forecast); And greater performance of European funds, in line with the evolution of the last quarter of 2021, as already included in the previous forecast, ”they continue.

One of the biggest imbalances for the Spanish economy is the budget deficit in the face of increased government spending, which implies, on the one hand, the government shock plan or an increase in unemployment benefits and, on the other hand, a reduction in income. Impact on the rise of war.

“Public deficit […] “It will still be at 4.5% in 2023,” Funcas experts warn. Among the various effects of the inflation peak, a 20 million increase in retirement spending in 2022 is linked to the CPI. “Public debt, in turn, will exceed 112% of GDP next year; “And, perhaps, the interest burden has already fallen and will start growing from 2022,” they added.

“The main risk behind these forecasts lies in the geopolitical environment. Armed conflict can develop in a direction that is even more worrying for the security of the European continent. On the other hand, the escalation of sanctions will lead to a complete disruption of trade relations between the EU and Russia, which will further exacerbate the energy crisis and create new disruptions in the supply chain. “In this context, a recession in the eurozone will not be ruled out,” Funkas concluded.