The Spanish economy continues to hold up well. The Bank of Spain joins the growing trend of all types of organizations and study centers to revise GDP growth for this year upwards. Specifically, it corrected it by seven tenths upwards until it stood at 2.3%, above the Government’s forecasts, while it moderated its inflation forecast, and lowered it by half a point, to 3.2%.
To explain the upward correction of GDP, the Bank of Spain adds a confluence of factors. Basically, a better end of 2022 than initially forecast, to which is added half a point growth in the first quarter of the year, and the calculation that in the second quarter the economy will grow even more, a 0.6% The expansion of activity in these first months of 2023 is based on the additional lower cost of gas, and with it also of electricity, the disappearance of bottlenecks in production processes, the stabilization of financial markets after the alarming turbulence in March, as well as the dynamism of tourism.
Some positive data to which the Bank of Spain adds a point of prudence, noting that in the final stretch of the second quarter there has been a moderation in the strength of activity. For example, both in affiliation to Social Security and in the confidence indicators, the data for May are positive, but somewhat less than in April. “The second quarter has gone more or less,” says Ángel Gavilán, the Bank of Spain’s general director of Economy and Statistics, adding that we do not know “how persistent” these latest negative data will be.
In any case, the expansion of economic activity is expected to continue in the coming quarters, thanks to the resilience of the labor market, the moderation of inflation and the impact of European recovery funds, which will invigorate business investment . A scenario in which there are also elements that could slow down activity, such as the tightening of financial conditions and in the case of tourism, although it maintains positive prospects, its contribution to GDP will be less in the future, once the pre-pandemic levels. In addition, the effect that the progressive withdrawal of aid to deal with the energy crisis may have must be taken into account.
For the year as a whole, it will be exports and investments that will push growth up to 2.3%. On the other hand, private consumption will play a much more modest role, confirming the slackness it has been showing in recent months. In this way, in the next two years, the forecast is that growth will moderate slightly, with 2.2 in 2024 and 2.1% in 2025.
One element to highlight is that the composition of growth this year will be very different compared to 2024 and 2025, when private consumption will be an important piece 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 Spanish GDP has already reached the pre-pandemic level. It is true that he lacked a little, and at the end of the first quarter it was considered that he only had two tenths left to achieve it. In any case, the Bank of Spain also points out that the gap with Europe has widened, given that most European countries have previously recovered this level.
With regard to inflation, the Bank of Spain certifies its trend towards moderation and forecasts that this year it will remain at 3.2%, which is half a point less than its previous calculation. Specifically, it is expected that in June it will even remain below 2%, but it will pick up in the second half due to the base effect linked to energy. For the following two years, the Bank of Spain maintains its calculations: 3.6% in 2024, which represents a temporary upturn by eliminating anti-inflation measures, and a clear drop to 1.8% in 2025.
On the other hand, the Bank of Spain underlines the moderation of wage increases and with the additional guarantee provided by the signing of the Agreement for Employment and Collective Bargaining (AENC), to avoid second-round effects on inflation. In addition, it also points out that salary increases are higher in sectors where there are more vacancies, such as information and communication activities and professional, scientific and technical activities.
Regarding business margins, it is noted that they have rebounded in the first quarter of 2023, although the margin on sales is still below the level of 2019. It is a very heterogeneous increase in margins that is largely explained by the differences of the expectations of the companies on the increases of costs in the future. The forecast is that the increases in business margins will moderate in the future.
