Bank of Spain Hikes Spanish GDP and Inflation Outlook For 2021 Through 2023

21 September 2021

By David Barwick – FRANKFURT (Econostream) – Spanish economic growth this year will bounce back by 6.3% and remain at an elevated 5.9% next year before subsiding in 2023 to a still-respectable 2.0%, according to the central scenario of Banco de España’s latest macroeconomic projections, released on Tuesday.

The new estimates include a slight upward revision for every year versus the previous outlook; in June, Banco de España’s central scenario had envisioned growth of 6.2% in 2021, 5.8% in 2022 and 1.8% in 2023.

HICP in the Eurozone’s fourth largest economy would come in at 2.1% for 2021 as a whole, decline to 1.7% next year and then fall further to 1.3% in 2023, the central bank said. In June, inflation was seen coming in at 1.9% this year, 1.2% next and 1.2% in 2023.

The forecasts call for unemployment in Spain to remain high throughout the projection horizon, with a rate of 15.1% this year seen decreasing to 14.3% next year and 13.3% the year after. Still, that represents a marked improvement over expectations in June of 15.6% this year, 14.7% next year and 13.7% in 2023.

Banco de España said pre-pandemic output levels would be regained during the second half of next year and then surpassed. Monetary and fiscal policy would support the recovery, in particular via the Next Generation EU (NGEU) programme.

‘Moreover, the supports to the expansion of activity include the recovery in the rest of the advanced economies (whose progress in the vaccination process is greater than in the case of the emerging economies), the prolongation of the recovery in resident household spending (albeit dampened, however, by the pick-up in inflation) and the expected greater dynamism of international tourism flows’, Banco de España said.

The central bank observed that there were ‘numerous downside risks, which, on balance, are considered to be balanced in terms of their impact on economic growth projections.’

‘The downside risks stem mainly from a further persistence of the current disruptions in global supply chains, from a possible more unfavourable evolution of the pandemic (especially in emerging economies), or from the existence of lasting repercussions of the pandemic on the productive fabric’, it said.

‘The upside risks stem from the possibility that households will spend more of the savings accumulated since the start of the pandemic on current expenditure and that tourism flows will converge to pre-pandemic levels more rapidly’, it added.

As for inflation, ‘the current environment is characterised by a much higher degree of uncertainty than in recent years’, Banco de España said. ‘In particular, the current pick-up in inflationary pressures may be more persistent than assumed in these projections.’

Whether this occurs ‘depends, first, on commodity prices showing greater upward inertia than assumed in the assumptions incorporated in the exercise and, second, given the already observed increases in commodity prices, on their pass-through to final prices and wages being greater than assumed in these projections on the basis of empirical regularities observed in recent years.’