The Spanish economy continues to hold up well. The Bank of Spain has been the latest, for now, to join the trend of revising GDP growth for this year upwards. Specifically, it corrects it by seven tenths to place it at 2.3%, above the central government’s forecast, while lowering its inflation calculation by half a point to leave it at 3.2%.
To explain the upward correction in growth, the Bank of Spain adds a series of factors. A highlight is a better-than-forecasted end to 2022, to which must be added growth of half a point in the first quarter of the year, and the forecast that, in the second quarter, from April to June, the economy will grow even more, by 0.6%.
The expansion of economic activity in these first months of 2023 is largely based on external demand, both for tourist and non-tourist services, i.e. transport, consultancy and management and IT, made by large companies, which which gives them a great capacity for adaptation.
On the other hand, at the beginning of the year, what slowed down growth was private consumption, with a bad first quarter, although it recovered slightly in the second. Looking to the future, the dynamism of the labor market will play in favor of growth, which will favor the recovery of household consumption; exports, driven by improved competitiveness and a better global context, and a greater deployment of European funds.
Some positive data to which the Bank of Spain adds a point of prudence, after highlighting that in the final stretch of the second quarter there has been a moderation in the strength of the activity. For example, both in Social Security affiliation and confidence indicators, the data for May are positive, but slightly less than those for April. “The second quarter has gone from more to less”, says Ángel Gavilán, the general director of economics and statistics of the Bank of Spain, who adds that we do not know “how persistent” these latest negative signs will be.
With these data, the Bank of Spain’s forecast is that, after 2.3% this year, growth will moderate slightly in the next two years, with 2.2% in 2024 and 2.1% in 2025. One element that should be highlighted is that the composition of growth this year will be very different compared to that of 2024 and 2025, when private consumption will indeed be an important part after the weakness of recent months. It will recover significantly in the second half of this year and will continue to grow, albeit more moderately, in the following two years.
In this way, the Bank of Spain considers that the Spanish GDP has already reached the pre-pandemic level, which has already exceeded the two tenths that remained in the first quarter of the year to recover the level of activity of 2019. however, it also points out that the gap with Europe has widened, since most European countries already recovered this level earlier and Spain remains behind in this race to recover positions.
Regarding inflation, the Bank of Spain certifies its tendency towards moderation and predicts that this year it will remain at 3.2%, which means half a point less than its previous calculation. Specifically, it calculates that in June it will even be below 2%, but that it will pick up in the second semester due to the base effect linked to energy. For the following two years, the forecasts remain: 3.6% in 2024, which represents a transitory rise after the elimination of anti-inflation measures, and a clear decline to 1.8% in 2025.
On the other hand, the Bank of Spain emphasizes that the moderation of salary increases has avoided second-round effects on inflation, but specifies that the strongest increases go to the sectors with the most vacancies, such as information and communications activities and professional, scientific and technical activities.
