Bank of Spain Cuts 2021 Spanish GDP Outlook But Sees Mid-Term Risks More Balanced

23 March 2021

By David Barwick – FRANKFURT (Econostream) – Spanish economic growth this year will bounce back by 6% and remain at an elevated 5.3% next year before subsiding in 2023 to 1.7%, with medium-term risks more balanced than they were a few months ago, according to the central scenario of Banco de España’s latest macroeconomic projections, released on Tuesday.

The new estimates include a significant downward revision from the previous outlook for this year; in December, Banco de España’s central scenario had envisioned growth of 6.8% in 2021, 4.2% in 2022 and 1.7% in 2023.

HICP in the Eurozone’s fourth largest economy would come in at 1.4% for 2021 as a whole, decline to 0.8% next year and then remount to 1.2% in 2023, the central bank said. In December, inflation was seen coming in at 0.6% this year, 1.2% next and 1.3% in 2023.

The forecasts call for unemployment in Spain to remain high throughout the projection horizon, with a rate of 17% this year seen decreasing to 15.1% next year and 14.1% the year after.

Alongside the central scenario, the Spanish central bank published a more optimistic one calling for growth of 7.5% this year and 5.5% next, as well as a pessimistic scenario in which the economy would expand by only 3.2% this year and 4.6% next.

‘The economic outlook remains subject to a high degree of uncertainty, linked both in the short term to the evolution of the pandemic and the speed of the process of immunisation of the population and in the medium term to the economic consequences of the crisis’, Banco de España said.

The economic consequences of the crisis depend on the destruction by the pandemic of businesses and jobs, as well as on how quickly economic agents’ behaviour returns to normal, the central bank said.

Near-term risks are on the downside, the bank said, and ‘linked mainly to more intense episodes of contagion or a slower progression in the immunisation schedule considered in the central scenario.’

‘Beyond the short term, uncertainty has tended to be mitigated in recent months as the effectiveness of vaccines has been confirmed, reducing the likelihood of the worst-case scenarios materialising’, the bank continued. ‘Uncertainty has also tended to be reduced as a result of the recently approved fiscal package in the United States and the agreement on the UK's exit from the European Union. As a result, the risks surrounding the projections for activity growth in the central scenario are more balanced over the medium term than they were a few months ago.’