The agency calculates that the government-approved gas cap will cut the average CPI rate for this year by half a point, although it will increase by a tenth in 2023
The slowdown of the Spanish economy was “more pronounced” than expected in the first quarter of the year: the omicrom variant and the transport strike disrupted the good prospects for recovery after the worst part of the pandemic was over, and the outbreak of war Ukraine’s already weakened situation only worsened at the end of February. And the second quarter is also very complicated, resulting in rising inflation and disappointing consumption.
For example, in its new economic report released this Friday, the Bank of Spain forecasts GDP to rise 0.4% in the second quarter, one-tenth more than in the first. In the year, the agency estimates the economy will grow at 4.1%, four-tenths less than its estimates just three months ago and one and a half points lower than its forecast before the outbreak of the war. For 2023, he expects the economy to grow by 2.8%, also a tenth less than the April report, and only improves on his predictions for 2024, when Spain will finally manage to recover pre-crisis levels. , with a growth of 2.6%, one-tenth more than estimated.
They are more pessimistic than the government’s forecasts, which are forecasting growth of 4.3% for this year and 3.5% for the following year. The Bank of Spain acknowledges that the war in Ukraine is a “new negative disruption”, while the country had not yet completed recovery from the health crisis.
“The start of the war opened a period of enormous uncertainty that continues unabated three and a half months later,” the report said. The organization assures that the war has increased “inflationary pressures” and changes in supply chains, which “limit the dynamism of global activity and obscure future prospects”.
All this prompted by the persistently high price level, both for energy and food, which has a “pronounced negative impact on the purchasing power and thus on the spending of private agents”, the body admits. For example, they assure that underlying inflation (which does not take into account the price of energy or fresh food) has been “surprised” by its strong rise, reaching 4.9% at the end of May, the highest level since the 1990s.
The only thing that can “slightly” reduce inflation is the Iberian gas price cap mechanism – recently approved by the European Commission – which could improve the inflation forecast for 2022 by half a point, although it will increase it by one tenth in 2023 because the mechanism will not arrive until the month of May. The impact of the measure is therefore less optimistic than the government estimated, eight tenths, according to Minister Teresa Ribera.
In this way, the Bank of Spain forecast that we will end 2022 with an average inflation rate of 7.2%, three tenths less than three months ago, while next year it will be 2.6%, half a point more. It’s a very high rate, but not as high as the OECD forecast, which this week pointed to an average inflation rate in Spain of 8.1% this year.
As for the measures approved by the government to mitigate the effects of the war in Ukraine, such as the petrol subsidy and the reduction of VAT on electricity, the Bank of Spain calculates that an extension after June 30 would mean that inflation of would be reduced by three tenths this year, although it will increase at the same rate next year. And as for the deficit, that means it needs to be increased by 0.3 points this year due to higher government spending.
Without this forecast, the Bank of Spain believes the deficit will end the year at -4.6%, four tenths better than estimated three months ago. For 2023, the budget deficit will be -4.5%, seven tenths less than previously forecast. In terms of public debt, the agency estimates 114.9% of GDP, two points higher than the previous forecast, while debt will remain very high for 2023, at 113.2% of GDP, four tenths more than expected .
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
