the euro zone

Take a guess

Partly because of a slight slowdown in Q1 growth, the Spanish government announced this week that the pace of Spain’s GDP expansion is going to decrease over the next three years. Year-on-year, the country’s economy expanded by 2.9% in the first three months of 2018 - the first time quarterly growth has dipped below 3% in three years - prompting Mariano Rajoy’s Popular Party (PP) to announce that expansion will slow to 2.4% in 2019, down from an expected 2.7% this year. That figure will fall to 2.3% in 2020 and 2021, said the PP.

Why does the government - or indeed any other body involved in the “GDP-Expansion-Forecast” game - release such predictions so far in advance, one wonders? Organisations such as the Bank of Spain and the International Monetary Fund change their growth estimates for Spain at least twice a year, usually increasing them to match the actual rate of the previous year’s growth.

This is precisely what happened in 2017. The Spanish government, the Bank of Spain and the IMF upped their forecasts as the months progressed, seemingly to try and reach the figure of 3.2%, the rate at which Spain’s GDP grew in 2016. Finally, all those organisations’ revised predictions were in line with the actual growth rate of 3.1% in 2017, thus enabling Rajoy to continue his rosy narrative about the Spanish economy.

It’s likely, looking at precedents, that the forecasts for 2021 will be changed at least once a year by the Spanish government between now and then. And that’s not even considering fluctuations in estimates made by other organisations - both Spanish and international - which will also occur several times over the next three years.

Indeed, the IMF has already started playing the latest round of the “GDP-Expansion-Forecast” game. Last October, before things erupted in Catalonia, the Washington-based organisation predicted that the Spanish economy would grow by 2.5% in 2018. In January, it reduced that forecast to 2.4%, noting that post 1-O (1 October) events in the north-easterly region would probably dent investor confidence in Spain.

Yet the Spanish economy has barely registered the effects of 1-O and its chaotic, divisive fallout. Accordingly, two weeks ago the IMF tweaked its Spain growth forecast for the second time in four months, increasing it to 2.8% (better even than its pre 1-O estimate of 2.5%). In doing so, Poul Thomsen, boss of the fund’s European Department, assured everybody that the dispute over Catalan independence was just a “political issue” and therefore unlikely to dent Spain’s economy in the medium term.

Those who thought that politics and economics were inextricably connected, especially in present-day Spain, thereby stand corrected. Even so, it’s probably best not to take guesses - sorry, “forecasts” - concerning the growth of the Spanish economy too seriously, from the IMF or from anyone else.