The Spanish economy is predicted to end this year better off than even the government expected, according to the Organisation for Economic Cooperation and Development (OECD), which is forecasting growth of 4.7% for 2022, rather than the 4.4% originally estimated.
However, the World Economic Outlook report which it published this week is warning that 2023 could be a bad year for Spain, with growth of only 1.3%. This is nearly one per cent lower than its forecast six months ago, of 2.2% growth next year.
Inflation is behind this pessimistic forecast, because it is going to remain high and that will affect family spending, the report says.
Inflation is expected to be 8.6% in Spain at the end of this year. It will moderate in 2023 and 2024, economists say, but is unlikely to drop below 4.8%. In fact, the core inflation rate (which does not take into account energy or fresh foods) will be 4% by the end of this year and rise to 4.8% in 2023, although the OCDE believes it will drop to 3.7% in 2024. This is still very high in comparison with the 0.6% in early 2021.
To offset the worst effects of the crisis in Spain, the OCDE says there should be an ‘income pact’ to help share the burden of price increases and mitigate the risk of salaries and prices spiralling.
It considers that the fiscal measures introduced by the Spanish government to alleviate rising costs should be temporary and aimed at those most in need, and that they should be reviewed periodically.
The organisation says this will be compatible with deficit and debt reduction targets as well as environmental objectives, and also recommends that “opportune and effective” use is made of the EU Next Generation funds to support business investment, boost long-term productivity and enhance green transition.
Despite the warnings, Spain is still doing better than most Eurozone countries. The German economy, for example, is expected to shrink by 0.3% next year, while France and Italy will only grow by 0.6% and 0.2% respectively.
The eurozone in total will only grow by 0.5% while the world economy will advance by 2.2% with inflation over 5%. The USA will only grow by 0.5% and China by 4.6% in 2023; the latter is the major engine for world growth, but this is still well below its normal rates.