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The Bank of Spain has ruled out GDP recovering to pre-Covid levels before 2024


The Bank of Spain has denied that the national economy will recover pre-Covid growth levels before the first quarter of 2024, amid a more complex international environment than expected and due to the impact of more persistent inflation, exacerbated by the war in Ukraine. This year, GDP will close by about 2.3 percentage points below pre-pandemic levels and, Going forward, the recovery will be “less intense than previously estimated”., due to sharp rise in prices. In fact, in 2023, an upward revision of inflation in Spain and the euro area is also starting to take place due to increases in prices reported by other items in the consumer basket besides energy and food.

Tightening financing conditions, including a rate hike by the European Central Bank in July to tackle high inflation, and a deteriorating external environment also contribute to lower growth expectations. The fact that external references have also deteriorated significantly “It lowers Spanish export expectations”, despite the increased competitiveness implied by the devaluation of the euro against the dollar (most of our exports are to EU countries). On the positive side, the resilience of tourism, as well as the funding associated with the Next Generation program or the gradual resolution of breaks in the global supply chain, could both represent an additional stimulus for activity.

The Spanish economy is likely to remain in neutral conditions Subject to extraordinary uncertainty, and risks are concentrated on the downside. “In our central scenario, no recession is expected, but it is true that the probability is high,” says Angel Estrada, General Director of Financial Stability, Regulation and BDE. This scenario envisages a reduction in inflation to a level close to 2% in 2024. However, if the war in Ukraine intensifies, Europe’s energy supply could be severely disrupted and inflation will be more pronounced and more persistent than expected. come on The purchasing power and confidence of households and companies will be affectedAnd their spending decisions and employment and activity will again be negatively affected.

A very complex external context

Persistence of high inflation rate, tightening of economic conditions, retention of some distortions or bottlenecks on the supply side, loss of confidence of agents and existence of high degree of uncertainty, This contributed to the weakening of activity in the third quarter of this year. These factors are expected to continue to weigh on the prospects for Spanish economic activity in the coming quarters.

Greater uncertainty about the evolution of supply factors also poses a risk. Possible disruptions in transportation and supply of raw materials and energy goods, as well Maintenance of Sanitary Restrictions in Asia-Pacific, can increase disruptions in global value chains. In addition, if there were to be a major cut in gas supplies from Russia to Europe, the industrial activity of the most direct member states of the European Union could be greatly affected, which would be transmitted to the rest of the countries through trade. area..

More vulnerable to public debt

The public administration deficit has narrowed to 4.6% of GDP so far this year (in June 2022), which represents a 2.3 percentage point decrease with respect to the value seen at the end of 2021. The reduction has been faster than expected. Previous macroeconomic forecasts. In terms of the ratio of public debt to GDP, it will remain stable in 2022 with respect to the value observed at the end of 2021 (118.4% of GDP) and may experience a certain decline until 2024 (109.9%) due to the expansion of nominal GDP. of GDP). However, High existing public indebtedness makes the Spanish economy vulnerableEspecially in the context of interest rate hikes that increase the financial cost of public debt.

By maintaining high levels of debt, it remains a vulnerability to a possible deterioration in financing conditions, therefore Spain will have limited fiscal space to react to the reality of new risks. Faced with high inflation and public debt conditions, the Bank of Spain insists that fiscal policy measures Focus on target and low income families, which are most affected by the impact of inflation and which companies are most vulnerable to this effect. In addition, the measures should be temporary to avoid a further increase in the structural public deficit.

Fiscal integration and European funds

In parallel, the organization calls for a fiscal consolidation process to gradually reduce current fiscal imbalances and gain room for maneuver in the face of future constraints. Thus, the deployment of investment projects related to the European Next Generation EU program is already considered – even if the implementation of the program is delayed – an appreciable fiscal stimulus. Thus, If European funds are used intensively (Which does not directly affect the public deficit, but has a positive effect on economic activity) And that process of fiscal consolidationSome support for economic activity will be maintained while the high structural public deficit gradually declines.

The institute notes how high inflation and rate hikes will already increase financial pressures on households, especially those with low incomes. “In particular, rising energy prices will force a reduction in savings among households with more financial resources and a reduction in consumption of non-energy goods among those with lower incomes”, they note. However, the organization considers it The pass-through to bank financing costs for households is still moderate due to the rise in market interest rates. However, a large increase in the cost of borrowing is expected in the coming quarters, in particular, due to an increase in the mortgage rate revision Euribor, which will increase the financial pressure on households.

Source: lainformacion.com

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