The projections of the Bank of Spain include a new reduction in the estimate of growth of the economy for this year, mainly due to the restrictions of Covid and the tensions generated by the Russian invasion of Ukraine. Specifically, the cut is four tenths, leaving the GDP at 4.1%. But, the most significant is the message of control of inflation. Although it raises the forecast for core inflation, which does not include the volatility of perishable food and energy, from four tenths to 3.2%; expects a significant drop between now and the end of the year, taking into account that the data published by the INE for May is close to 5%.
While the ECB yesterday declared war on inflation , the Bank of Spain’s new forecasts include a message that the worst is over. “The bulk of the transfer of recent cost increases to sales prices has already occurred, and, on the other hand, it is assumed that wage demands will respond in a limited way to the rise in inflation, in line with what has been observed to date , which would prevent feedback phenomena from being triggered between wage growth and final prices”, comment the authors of the Quarterly Report on the Spanish Economy.
The broad outlines, based on numbers, point to a rise in expected inflation on average for 2022 and, to a lesser extent, for 2023. Specifically, the estimate of core inflation for 2022 is from 2.8% in the projections of last March) to 3.2% . Also, the Bank of Spain raises its forecast by four tenths to 2.2% for 2023.
Despite the worsening of the scenario, it represents a significant reduction compared to the latest figures from the INE, which it has published today , which is close to 5%. Between now and the end of the year, prices should begin to moderate.
Economists justify the rise in core inflation forecasts due to the surprise in the first quarter of “the intensity and persistence of the rise in prices” in food and energy, motivated by the Russian invasion of Ukraine and the zero covid policy of China. But the central scenario of the Bank of Spain points to ” inflation rates gradually moderating over the next few quarters “.
The body led by Pablo Hernández de Cos becomes one of the first official entities to contemplate a drop in inflation in the medium term. There are already data that suggest this possibility . Precisely today, too, defends this thesis in the Survey of Spanish companies on the evolution of the activity.
The Bank of Spain has also lowered its harmonized inflation forecast for this year by two tenths to 7.2%. In May, it touched 8.7%. And it is that the organism trusts in a fall of the prices of the energetic component. On the one hand, he expects the price of oil to fall above 105 dollars on average , compared to the current price of over 120 dollars.
And on the other, the entry into force of the Iberian mechanism to limit the price of gas and lower the electricity bill that Spain and Portugal are agreeing with the European Commission, suggests a sharp slowdown in the energy component of prices in our country over throughout the projection period.
The Government hopes to cut inflation to 1% with the gas cap
The Government itself estimates that the measures to limit the price of energy will cut inflation by up to one percentage point. The third vice president and minister for the Ecological Transition and the Demographic Challenge, Teresa Ribera, estimated this Thursday that the cap on the price of gas in the Iberian market will help reduce inflation in Spain “around eight tenths or one point” in the next months. In any case, the Bank of Spain underlines that the effect will be diluted throughout 2023. Moreover, it points out that the impact on the harmonized CPI will be 0.5% in 2022 .
Yesterday, the European Central Bank and its president, Christine Lagarde, were not so condescending with inflation and described a nightmarish scene, with prices soaring at the end of the year close to 7%.
The Bank of Spain in the projections take into account Frankfurt’s fears, but include it in the risks section, with a “downward bias for activity and an upward bias for inflation, as a consequence, above all, of the uncertainty about the developments of the war and its economic repercussions” for the war in Ukraine and its consequences. They also point to the possible materialization of indirect and second-round effects for inflation. “In this sense, it should be noted that, with data up to April,
Further cuts in growth forecasts
The Bank of Spain has offered preliminary figures for GDP growth in the second quarter. The Spanish economy accelerated slightly with an advance of 0.4%, compared to 0.3% in the first quarter. It is the first estimate on the evolution of the economy between April and June, and usually coincides with the figure published by the INE, which is scheduled for June 29. The agency warns that the data “is subject to a high degree of uncertainty, since the quantitative economic information related to it is still limited.”
It must be taken into account that the Spanish economy, since the beginning of the year, has registered a significant slowdown compared to 2021, due to the Russian invasion of Ukraine and the adverse impact of the omicron strain of the coronavirus. Spain had been growing at a quarterly rate of over 2%. The economists of the Bank of Spain estimate that the GDP of 2022 will increase by 4.1% compared to 4.5%, previous . And for next year it lowers the forecast one tenth to 2.8%.
The forecast evolution of GDP would allow the Spanish economy to recover the level of output prior to the pandemic in the second half of 2023. In the March forecasts, the milestone was not contemplated until the beginning of 2024.