MADRID, 22 (SERVIMEDIA)
The Bank of Spain confirmed this Wednesday the upward revision of its economic growth forecasts for 2023 and now forecasts that GDP will expand by 1.6% this year, three tenths more than in the previous estimate. Simultaneously, it corrected its calculations downwards for 2024, when it projects that the economy will grow by 2.3%, four tenths less, due to the rise in interest rates and a greater fiscal adjustment.
This is reflected in its latest quarterly economic report, where it also points to a substantial drop in inflation this year: from the 4.9% it drew in December to the 3.7% it now forecasts. However, it raises its estimate of core inflation from 3.4% to 3.9% –which does not include energy or processed food– for this year, and predicts an increase in the rate of increase in food prices, up to average 12.2%, compared to the 7.8% expected in December.
The Bank of Spain’s estimate of economic growth is more pessimistic than that of the Government -2.1%- and that of the Organization for Economic Cooperation and Development (OECD) -1.7%-, although it improves that projected by others large national and international organizations such as the European Commission –1.4%– or the International Monetary Fund (IMF) –1.1%–.
However, it is relevant to note that these macroeconomic projections were completed in early March, just before the bankruptcy of Silicon Valley Bank (SVB) or the purchase of Credit Suisse by UBS, two events that have fueled “uncertainty”. in the markets. Therefore, the agency believes “probable” that they have “a certain adverse effect” on economic activity and weaken inflation.
However, without taking these financial “tensions” into account, the Bank of Spain expects “a gradual strengthening” of economic activity in the coming quarters thanks to a drop in inflation, a better international context — “partly” due to the reopening of the Chinese economy and the relaxation of bottlenecks in global supply chains— and the implementation of “a growing volume” of projects linked to European Next Generation EU funds.
The “gradual” growth of the Spanish economy is reflected in the figures of the Bank of Spain. From the 1.6% that will advance in 2023, it will go to 2.3% and 2.1% in 2024 and 2025, respectively. All this, after growing by around 0.3% in the first quarter of this year, an evolution that was due, above all, to a “greater than expected” rise in employment. In fact, after this start to the year, the Bank of Spain has also decided to review the unemployment rate forecast for this year, going from 12.9% in December to the 12.7% it is currently drawing.
LOWER INFLATION
The projections also contemplate a progressive decrease in the rise in prices. On an annual average, the inflation rate will drop from the 8.3% registered in 2022 to 3.7% in 2023. In December, it estimated that the CPI would stand at 4.9%, so its estimate is decreases 1.2 percentage points with respect to the previous macroeconomic scenario.
The Bank of Spain justifies this correction “exclusively” on the downward trend in energy prices, which is expected due to the expected lower cost of energy raw materials in the coming months, “according to current prices in the futures markets ”.
Likewise, he indicated that the rises registered in the first two months of the year –in which it has risen to 6% annually– are due to the impact of the elimination of the fuel bonus, “which would have increased by about 0.7 percentage points the inflation rate”, as well as the methodological changes introduced by the INE to calculate the CPI, which added another 0.7 points to the CPI in January for including the free electricity market and the reversal of the changes in the household consumption patterns during the pandemic.
By 2024, however, the reduction in the general inflation rate will be “much more modest”, up to 3.6%, due to the end of the measures approved to mitigate the effects of the energy crisis; although it will be pronounced in 2025, when it will fall to 1.8%. The underlying, for its part, will fall from 3.9% in 2023 to 2.2% and 1.8% in 2024 and 2025, respectively.
These “elevated inflationary pressures” continue to “penalize” household consumption, which still shows “appreciable weakness” due to “the continued” tightening of financial conditions, “whose effects on real activity have not yet fully materialized ”, and the smallest savings mattresses available.
DEBT AND DEFICIT
With regard to the public deficit, the Bank of Spain calculates that it closed 2022 at 4.6%, a more optimistic figure than the 5% predicted by the Government. However, in the medium term, the agency warns that it will be at “relatively high” levels, up to 4.4% in 2025, unless “additional measures” are taken.
For this reason, the director general of the institution, Ángel Gavilán, joined the demands of the governor of the Bank of Spain, Pablo Hernández de Cos, and once again demanded that the Executive prepare a fiscal consolidation plan that allows reorienting the economy .
On the other hand, the report contemplates an increase in short-term debt –from the 110.6% forecast for 2023 in December, to the 111.1% estimated now–, followed by a decrease in the medium term –from 109. 8% to 109.6% by 2025–.
“VERY HIGH” UNCERTAINTY
All these forecasts do not take into account the unleashing of the latest “episode of strong financial tensions on a global scale”, which has meant “a new adverse disturbance, the magnitude and persistence of which are highly uncertain”.
The Bank of Spain considers that Silicon Valley Bank, the North American entity that went bankrupt almost two weeks ago, was a bank “with a very particular balance sheet structure that made it especially vulnerable to increases in interest rates.”
However, it maintains that its “fragility” generated “doubts in the international capital markets regarding the soundness of other financial institutions”, which, added to a rise in interest rates “very intense, rapid and synchronized on a global scale in in recent quarters”, has resulted in “a large majority of banking entities” having experienced “a significant deterioration in their stock prices” and have required specific support measures from the authorities.
“At this time, it is not possible to specify whether, in the immediate future, these financial tensions will persist or if, on the contrary, they will gradually decrease. In any case, it seems probable that the uncertainty that has been generated will exert a certain adverse effect on the development of economic activity in the coming quarters and will also contribute to weakening the inflationary dynamics”, adds the text, thus pointing to a further tightening of access to finance.
However, the Bank of Spain insists on the message of the European Central Bank (ECB) and affirms that both the euro area and Spanish banking sectors have “a high capacity for resistance and solid capital and liquidity positions”.
(SERVIMEDIA)22-MAR-2023 14:01 (GMT 1)PTR/pai
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