The macroeconomic forecasts presented by the Bank of Spain this Tuesday will be a dead letter in the coming weeks if the European Commission approves a limit of 30 euros per megawatt hour for power plants that use this raw material, the so-called. Iberian Exception “proposed by Spain and Portugal.
An event that will halve electricity bills, as explained by Third Vice President and Minister of Environmental Transition Theresa Ribera in an interview with elDiario.es. The assessment, backed by Economic Vice President Nadia Calvinio, was also backed by a news conference following the Council of Ministers on Tuesday.
The institution cut its GDP growth forecast by nine-tenths by 2022 and another percentage point by 2023, by 4.5% and 2.9%, respectively, due to the blow of the war and mainly due to the escalating energy prices it has. Caused in recent months.
An increase that has already been filtered throughout the shopping cart. The overall CPI (Consumer Price Index) accelerated to 9.8% in March and the Bank of Spain itself expects it to reach an average of 7.5% this year. The dramatic increase in electricity prices in this indicator has a key weight, for which INE in its methodology provides only domestic contracts covered by a voluntary price for small customers (PVPC). These contracts are most prone to growth in the wholesale market and will immediately pick up the drop that the aforementioned Iberian solution will bring.
The Bank of Spain estimates a positive impact of two-tenths on economic growth and a one-tenths one-point reduction in inflation through fiscal measures approved by the government in the shock plan: fuel cuts, tax cuts. Restriction on electricity or rent renewal.
However, it does not estimate the gas margin awaiting Brussels approval, nor in the alternative assumptions of the central scenario (see chart).
The Bank of Spain report, which includes forecasts, acknowledges that “this measure could lead to a sharp drop in wholesale electricity prices and, consequently, have a significant impact on consumer prices.”
After reviewing the proposal, various experts agreed that if the European Commission approved a € 30 gas price cap to reduce electricity, it would have a “very significant and automatic impact” on the CPI escalation.
“However, given that the path to eventual materialization of this measure is unknown, no impact on it is taken into account in the forecasts,” the Bank of Spain concluded.
The organization considered alternative perspectives for the central scenario of growth and inflation under extreme assumptions, such as “the closure of all bilateral trade flows between Russia and the EU, including those related to energy raw materials.”
In this hypothetical result of the invasion of Ukraine and the European sanctions against Russia, the Spanish Institute makes three predictions: one “low substitution capacity”, the other “medium” and the last “high”, which implies progress. By 2022, headline inflation is 1.5 percentage points higher – from 7.5% of the central scenario to 9% – and a decline to 1.3 per cent for more pronounced GDP growth – close to 4.5% to 3%.
“And this will be the most limited impact of this scenario in the Eurozone, because here the least direct relationship between Spain and Russia is important,” said Angel Gavilan, CEO of the Bank of Spain in economics and statistics, at the presentation. Forecasts.
This advantage does not prevent the current rise in prices for oil, gas and other raw materials in international markets, caused by the same war in Ukraine, to be a bigger blow to our country than to the rest of the major economies. ᲔᲕᲠᲝᲞᲐ.
The blow is also greater on the purchasing power of Spanish households compared to the European average. The Bank of Spain acknowledges that workers are losing “a lot of purchasing power”, leading to the consumption of a savings bag accumulated during the pandemic, valued at 85,000 million euros, which is expected to decline by a third in 2022. The result of generalized price increases.
Exactly going back to inflation, beyond the general CPI, and moving to the main shopping basket, which excludes energy and food, as they are considered the most volatile elements, the institution predicts that it will remain at 2.8%. Of course, he warns that without electricity, gas and gasoline in the growing basket, 60% of goods and services are already growing by more than 2%.
In another alternative simulation of the central scenario of forecasts, the Bank of Spain estimates that if households consume two-thirds of these savings, and not just one, in return, GDP growth will accelerate by 0.4 percentage points. .
“The increase in consumption will lead to an increase in GDP and employment levels by four tenths in 2022 and an additional two tenths from 2023 to 2024,” the report said.
The Bank of Spain warns that given the current rise in prices, “the purchasing power of low-income households will suffer, with energy costs accounting for more than a fraction of the total.”
In addition, the savings rates of these households are usually relatively low, and the share of those who were able to accumulate emergency savings during a pandemic is more limited, so they have fewer margins to reduce the effect of the energy tax increase. Without reducing the consumption of other goods and services, “he added.
Source: El Diario
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