The Bank of Spain is revising growth for this year by four tenths, leaving it at 4.1%. In the revision of the economic projections that he presented this morning, a lower activity than expected in the first quarter is reflected, caused by the tail of the pandemic, with the omicron, the effects of the invasion of Ukraine and the transport strike, which had a higher incidence than expected. This slowdown in the first three months is only partially offset by a more dynamic second quarter, especially due to growth in services.
In this second quarter, the lifting of restrictions due to the pandemic, which gives impetus to the sectors that were most affected such as hospitality and transport, and the increase in consumption helped by the fiscal measures adopted, play in favor. The calculation is that economic activity will have more dynamism from the final stretch of this year, trusting in the improvement of confidence, the reduction of bottlenecks and the deployment of the funds of the recovery plan. Against, they can play, apart from the war in Ukraine, the tightening of financial conditions.
The final balance is this downward revision, leaving growth for the year at 4.1%, the same as the OECD gave on Wednesday and two tenths below those of the government. A growth that will come largely from the hand of tourism and investment. In the longer term, the Bank of Spain leaves the forecast practically unchanged, with 2.8% in 2023 and 2.6% in 2024. And the recovery of the pre-pandemic GDP level is set for the third quarter of 2023 .
On the other hand, the Bank of Spain notes how prices continue to surprise on the rise, although here the entry into force of the mechanism to cap gas in determining the price of energy has its impact. Specifically, the Bank of Spain calculates that it will allow a reduction of half a point in inflation this year. This allows for a slight downward revision, 2 tenths, which places it at 7.2%. However, the revision is in the opposite direction for the following two years, when this mechanism is no longer in force, with 2.6% in 2023 and 1.8% in 2024.
In relation to the gas cap mechanism, it is estimated that it will reduce the price in the wholesale electricity market by 30%, which will mean a 17% drop in the regulated bill (PVPC). Bearing in mind that electricity accounts for 4% of the CPI basket, the mechanism would make it possible to reduce average inflation by 0.5% this year. It is the base scenario that is combined with other alternatives that give an impact range between 0.4 and 0.7%.
As regards underlying inflation, which does not take into account energy or unprocessed food, it will continue to accelerate in the short term in a context in which the war in Ukraine and China’s covid-zero policy have delayed resolution of supply chain bottlenecks. In addition, it is verified that the companies are partially transferring the increase in costs to the sale prices of the products. The result is a forecast of 3.2% inflation without energy or food this year, which would moderate only slightly in the next two years, standing at around 2%.
They are forecasts that are subject to a high level of uncertainty, both due to the duration of the war in Ukraine and the sure tightening of financing conditions, with the announcements in this direction made by the ECB yesterday, and due to the intensity of the effects second round on inflation. In this sense, the Bank of Spain recognizes that the agreements signed this year until April, only include a 2.4% increase in wages, although it points out that the safeguard clauses that the entity fears so much reappear. Specifically, they are present in almost 27% of the agreements, compared to 15.7% in 2021.
The projections published today are based on the assumption that salary demands will respond in a limited way to inflation in line with what has been observed to date, and that the bulk of the transfer of costs to sales prices has already been made
