The Spanish economy endured the end of last year better than expected, avoided the specter of recession and starts 2023 with weak activity but with the prospect of accelerating from the spring. This is the scenario that the Bank of Spain outlined yesterday in its macroeconomic projections, which place the GDP increase for 2023 at 1.6%, three tenths above the December forecast.
There are also moderately positive data regarding inflation, which the Bank of Spain places at 3.7% for this year; that is, 1.2 points below the previous estimate. However, that’s where the good news ends and the bad news begins, coming in the form of core inflation and food prices.
Food prices will continue to rise in the coming months, they have not yet reached their ceiling, according to the Bank of Spain, which puts the average growth for this year at 12.2%. Moderation will have to wait another year, until 2024, when they will rise by 4.6%.
In terms of growth, it is a very modest start to the year, of only three tenths in the first quarter, to gain strength from the spring. This dynamism will be achieved by the reduction of inflationary pressure, the end of bottlenecks in supply chains and the intensification of the deployment of European funds.
On the other hand, this growth will be slowed down by the potential worsening of financial conditions, as well as the transfer to credit of the increase in interest rates. Also, it should be noted that these projections were closed before the banking storm erupted, with effects yet to be determined.
In this way, the Spanish economy will manage to recover its pre-pandemic GDP level in the second half of this year, certainly much later than the rest of the large European countries.
As for inflation, the general this year would be 3.7%; that is, 1.2 points below the previous forecast; a downward correction largely explained by cheaper energy, helped by the base effect when comparing the rate to the high inflation rates recorded in the first months of 2022. D In this way, it would be possible to go from the very high 8.3% in 2022 to 3.7% this year. On the other hand, the Bank of Spain revises in the opposite direction – that is, upwards – the inflation of food and the underlying inflation, which does not take into account either energy or fresh food and which shows the trends more background The calculation is that the underlying will be 3.9% in 2023, half a point more than was estimated in December.
More spectacular is the upward correction of the food price forecast, to an average of 12.2% this year. A revision of more than four points from the 7.8% that had been predicted in the December calculations. This reflects the gradual translation into prices of the costs that producers have had, a progressive process that takes time. Many cost increases in 2021 and 2022 are having inflationary effects on food this year. This is the case of a raw material such as cereals, the price of which has moved along the entire value chain: first to the industrial prices of products made with cereals, such as flour, and later to consumer prices of bread and cereals. That is why food inflation will have to wait until 2024, when it will drop by 4.6%, and 2025 (by 2.9%).
The Bank of Spain estimates that the high underlying inflation is an indication that companies are passing on part of past cost increases to their sales prices.
These are projections made before the latest tensions in the financial markets. The Bank of Spain predicts that they will have a “certain adverse effect” on the development of economic activity and, at the same time, that they will also weaken the inflationary dynamics. Double effect not yet quantified of this financial disturbance.
