The expansion of the Spanish economy will moderate during the second half of the year due to a declining tourism sector, weaker economic activity with major trading partners, the impact of tighter financial conditions and a less dynamic labor market. Despite this scenario, the European Comission augurs a positive immediate future for the Spanish economy with a upward revision of its forecasts for 2023. According to new interim summer forecaststhe economy will grow this year three tenths more than predicted just three months ago, 2.2% compared to 1.9% predicted in May, a fact that places the country as one of the main economic engines of the Eurozone.
According to the new update, which includes growth and inflation data from the six largest economies in the European Union, Spain will grow this year more than twice as much as France (1%) either Italy (0.9%) and far above Netherlands (0.5%), Poland (0.5%) and Germany (-0.4%) that will close the year in negative. This evolution, and particularly the slowdown of the German economy, means that Brussels has revised downwards the growth estimate for this year in the EU (from 1 to 0.8%) and in the euro zone (from 1.1 to 0.8%). “If the largest economy in the Union is experiencing slightly negative growth, this affects everyone,” said the commissioner for economic affairs. Paolo Gentiloni.
The reason for this slowdown, according to Brussels, is the weakness of domestic demand, particularly consumption, due to the impact of rising prices of goods and services, and the tightening of monetary policy. “Indicators point to a slowdown in economic activity in the summer and coming months, with continued weakness in industry and weakening momentum in services, despite a strong tourist season in many parts of Europe,” he explains. the Commission.
All this will lead to a slowdown in 2024. For this exercise, Brussels maintains a forecast for Spain of 1.9%eight tenths less than Poland (2.7%), but still well above the rest of the large economies of the Eurozone: France (1.2%), Germany (1.1%), the Netherlands (1%) and Italy (0.8%). This scenario has led community technicians to revise downward the figure for next year, from 1.7 to 1.4% for the EU as a whole and from 1.6% to 1.3% for the Eurozone. In the case of Spain, the figure of 1.9% is one tenth less than expected in spring, “since the weakening of economic activity expected for the end of the year will extend at least until the first half of 2024.” Despite this weakening of the economy, Commissioner Gentiloni has highlighted that Spain is “in a fairly good situation, better than in other countries in terms of growth and inflation” and has advocated continuing to “work hard” to avoid any delay in the implementation of the recovery funds.
Why does the Spanish economy manage to hold up better? Community technicians attribute it to a household purchasing power which is expected to benefit from the sustained relaxation of price pressures, along with rising nominal wages. All of this, the report points out, “partially mitigates the obstacles to private consumption.” It also adds the lower leverage of the private sector achieved in recent years and the resilience of the banking sector, which will contribute to mitigating financial risks, and the application of the recovery and resilience plan and the Next Generation funds which is expected to continue supporting investment growth over the forecast horizon.
Moderation of inflation
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In regards to the inflationthe new forecasts indicate that it will moderate in 2023 to 3.6% due to the continued deceleration of energy inflation registered in Spain since the third quarter of 2022. Furthermore, despite the upward pressure due to the expected gradual elimination of government support measures in the face of high energy prices, inflation will continue to fall and is expected to reach 2.9% in 2024. The new report also maintains that underlying inflation, that which excludes energy and food, does not manufactured goods, will decline more gradually as the pass-through of high energy prices to other items, especially food and services, continues through the first half of 2023.
Regarding inflation in the rest of the Eurozone, Brussels forecasts 5.6% in 2023 (6.5% in the EU) to fall to 2.9% in 2024, far from the peak of 10.6% registered in October from last year. Among the large economies of the EU, Poland registers the highest figure (11.4), ahead of Germany (6.4%), Italy (5.9%), France (5.6%), the Netherlands (4 .7%). The situation will tend to equalize in 2024: Poland (6.1%), the Netherlands (3%), Spain and Italy (2.9%), Germany (2.8%) and France (2.7%). The scenario updated by Brussels is not free of risks due to Russia’s war against Ukraine and the geopolitical tensions that continue to be a source of uncertainty. The European Commission also warns that monetary adjustment could affect economic activity more than expected and the possible impact of growing climate risks.