Economists believe Spain is “bordering a recession” this year and are suspicious that the new taxes will be applied to electricity companies and banks
The extremely high inflation has turned from an occasional event to “chronic” over time. Vice President Calviño acknowledged last week that the government will have to revise its CPI forecasts upwards, and economic organizations are already making their calculations with a much more pessimistic view of the future. This Monday it was the turn of Funcas, who revised the average inflation estimate for this year upwards to 8.8%, the highest given so far after 8.1% by the OECD and the European Commission.
That’s why they’re demanding that pensions be included in the “necessary” employer-employee income agreement, which is currently paralyzed until after the summer after two no-deal meetings. “The income pact should certainly take pensions into account, because it is the income that 9 million Spaniards receive and it is a very large part of the total public expenditure,” said Carlos Ocaña, director general of Funcas, during the presentation of the report.
According to him, the income pact is “necessary” to “avoid the inflation spiral”. In addition, an increase in pensions, coupled with an average inflation rate of 8.8%, would mean a 1% increase in government spending, which is “a very heavy burden on state budgets that will face increased costs as a result of the accrued debt with a rise in interest rates,” Ocana said.
Inflation, which they forecast will hit 5% next year, will weigh on the economy as a whole. While the ‘think tank’ continues to calculate GDP will grow by 4.2% this year, there is a “substantial change” in the components explaining this progress. Domestic demand, hitherto the mainstay of the economy, is set to plummet to 2.1% this year, 1.7 points less than the previous forecast. What balances these accounts is that foreign demand is up 1.7 points to 2.1%, mainly due to the expected tourism pull for this summer.
In this way, the growth forecast for 2023 is revised downwards, which remains at 2% instead of 3.3% previously estimated. “Between 2022 and 2023, the consumption contribution will be reduced by three points, it is very important,” revealed Raymond Torres, director of the Funcas situation.
Still, Torres assures they are not considering a recession scenario, but a “strong slowdown” scenario. According to his quarterly forecasts, which leave the latter part of the year at 0%, Spain will even be “bordering a recession”. His estimate is that after a first quarter of growth of 0.2%, the second will be the advance of 0.7%, the third of 0.5% and the fourth, nil. The appeal of the second and third quarters is driven by the good progress of tourism, which is expected to reach pre-pandemic levels this summer. Of course, if the cancellations and collapse of several European airports affect the arrival of foreigners to Spain, “it could jeopardize growth,” Torres said, although hotel reservations for now do not indicate that will happen.
As for the new taxes on electricity companies and banks that President Sánchez announced last week, they find it “questionable” that they will eventually be applied because they have not yet been realized and the government also announced an energy tax months ago and it has not yet has yet to be realized. In any case, they explain that it will be a tax with a “Robin Hood motivation”, which usually has the disadvantage of yielding less than the costs they incur for companies.
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.
