Bank of Spain confident that economy will grow by 2.3% as food prices continue to rise

The Spanish economy is set to grow by 2.3% this year, according to the Bank of Spain.

The estimate is 0.7% higher than the bank’s forecast just three months ago, and also surpasses the optimistic predictions of 2.1%, that the government sent to Brussels in its Stability Programme.

The driver behind the higher figure is the revision by the INE (national institute of statistics) of the growth rates for the second half of 2022 and the high economic activity throughout the first six months of this year, the institution said on Monday 19 June.

It also calculated that inflation will reach below 2% in June - in May it was 3.2% - but will pick up in the second half of the year and will remain high in 2024 when anti-crisis measures are withdrawn.

Even so, the Bank of Spain lowered its forecast for this year to 3.2%, half a point less than in its March estimates, due to a sharper decline in energy prices, although core inflation is revised up two tenths of a point (4.1%).

On a quarterly basis, it was also calculated that economic activity in the second quarter has accelerated, so the GDP could reach 0.6% compared with 0.5% in the first quarter.

The Bank of Spain's director general of statistics, Ángel Gavilán, said during the presentation of the report that the gap that opened up during the pandemic between Spain's GDP and that of the euro is far from closing. Although Spain will be the country with the highest year-on-year growth rate in the euro area over the next few years, this gap will not begin to close until the end of 2025, he added.

Gavilán also pointed out a "cooling" of the economy during this quarter, due to high prices weighing down consumption.

The inflation rate will fall mainly due to the drop in energy prices, but food prices will continue to rise. The agency estimated that the cost for food will be 11.5% more expensive by the end of the year than in 2022.