The Government has lowered its growth forecast for this year to 4.3%, almost three points less than the 7% it had drawn for the 2022 Budgets. For next year the economy will grow by 3.5% and the The unemployment rate will drop to 12.8% in 2022 and 11.7% in 2023. Inflation will slow down during the second half of this year until it reaches an average of 2% next year.
The Executive’s forecast for this year is the same as that of the Fiscal Authority, which is the body that has to validate it, and is slightly below that of the IMF, 4.8%, and that of the Bank of Spain, of 4.5%. Instead, it is just a little above that of Funcas, 4.2% or BBVA, 4.1%. The energy crisis aggravated by the invasion of Ukraine has turned the whole picture upside down. The start of the year has already been marred with weak growth of 0.3% quarterly due to the collapse of consumption. Inflation, which subtracts purchasing power from households and margins from companies, reduces consumption and, therefore, growth. Supply problems also weigh, especially for car sales. And in the first months of this year, the carriers’ strike and the wave of the Ómicron variant also had an influence. Another decisive factor is the execution of European funds, which until now has proceeded at a much slower pace than the Executive had budgeted.
That said, although the consensus has been around 4%, the uncertainty about how the year will end is enormous. 4% is a still robust growth rate that is based on several elements: the first is the recovery of tourism after the end of the restrictions due to the pandemic. For now, the reservation data shows a very vigorous campaign with numbers around 80% of those prior to covid, according to the figures handled by the Government.
The second is the disbursement of European funds. Although the start-up has been delayed a long time, the Executive assures that they have already been put on track and that in the coming months we will see how these resources provide an important boost to the economy. There are almost 28,000 million budgeted for this year and a good part of the 24,000 million last year that was not executed. Even if it’s still hard to spend, the amount that can be spent should be significant. For example, the Fiscal Authority calculates that almost half of this year’s growth could come from its execution. And Vice President Nadia Calviño defends that these resources have an effect even before they have been released because companies begin to invest before entering them.
The third determining element will be the evolution of consumption and how much use is made of the surplus savings accumulated during the pandemic, which according to Funcas calculations reached 60,000 million in 2020 and added another 30,000 million in 2021. Household purchases have not yet they have restored pre-pandemic levels when they are already facing a sharp loss of purchasing power due to inflation and high doses of uncertainty due to the war in Ukraine. However, that dammed up savings could help palliate the blow. And the government’s measures on the price of electricity should also provide some relief. The Executive hopes that the price problem will be diluted as the year progresses, entering a few months in which it is no longer compared with times when prices fell due to the pandemic.
And the fourth decisive factor is the good behavior that employment is showing. Calviño has highlighted that in April it has even accelerated. The head of Economy has argued that after the pandemic crisis the labor market has behaved much better than in other recessions thanks to the shock measures that were taken such as ERTE or ICO loans.
He knows in depth all the sides of the coin.
The Executive has to update these figures to send to Brussels the so-called Stability Program, a document in which it projects the behavior of public accounts over four years. The drawback of this report is that it is losing value to the extent that they are sent without specifying the impact of the measures they are going to take, even if they are committed to the EU in exchange for European funds, as is the case with the reform fiscal. Even without taking measures, the Government expects the public deficit to decrease this year from 6.9% of GDP to 5% thanks to the continued reduction in expenses of the pandemic such as ERTEs and the good performance of the economy and the income. Next year the Executive expects these red numbers to drop to 3.9% of GDP. The Minister of Finance, María Jesús Montero, explained that the good behavior of income allowed next year to reduce the deficit by 19,000 million more than expected. And that will provide a cushion to maintain the pace of adjustment of the accounts despite having lowered the growth forecast. The minister has affirmed that this higher collection is due above all to the economic and employment recovery, and not so much to inflation.
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