The General Council of Economists (CGE) has maintained its forecast for Spanish Gross Domestic Product (GDP) growth this year at 3.9% and the average annual rate of the Consumer Price Index (CPI) at 7.1%.
This is what emerges from the ‘Financial Observatory of the General Council of Economists’, published this Friday, which warns, however, that GDP growth of 0.2% in the first quarter, lower than expected, denotes that the country is witnessing a slowdown.
Looking ahead to the second quarter, economists expect growth in the second quarter to be between 0.3% and 0.4%. and expect some recovery in the third quarter, which could exceed 1%, thanks to the effects of tourism, which will not, however, reach 2019 levels.
In an environment of uncertainty, economists have also maintained their estimates for the average Consumer Price Index (CPI) rate at 7.1%. Although economists value the fact that in Spain measures are being adopted in the form of aid to alleviate the effect of this price increase on companies and individuals, they have warned that the gas cap and the 20 cents bonus on fuel prices “are not having the expected results”.In the case of the bonus “it has been absorbed by the increase in the cost of fuel”.
Regarding the latest measures adopted, mainly the lowering of VAT on electricity to 5%, economists believe that, even though it is an aid, it is not expected to have a relevant effect on the CPI.
“If it were a demand-side inflation, central bank policies could be effective, but since it is a global supply-side problem, these measures palliate the loss of purchasing power, but have no significant effect on inflation control,” they explained.
Nevertheless, the General Council of Economists considers that, to date, the second round effect of inflation is not occurring, given that wages are holding up despite price increasesHowever, they have warned that, if they increase at the level of inflation, “it could have the dangerous effect of feeding back and generating an upward spiral with difficult consequences”.
As for the deficit, economists also maintain the forecast at around 5.3% of GDP, but public debt is estimated to account for 115.9 of GDP at December 31, 2022, 6 tenths less than estimated in the previous forecast.
The estimate of the General Council of Economists is that the unemployment rate will fall in the summer months to around 13.2% at the end of the year, the same estimate as its previous forecasts.
The General Council of Economists has warned that there are other factors that introduce uncertainty into the economy, such as the bankruptcy moratorium which was approved by the Government in 2020 due to the pandemic, which ended on June 30, and which could result in companies that have remained under this moratorium finally deciding to file for bankruptcy and/or close down.
In this regard, economists recall that the Spanish business fabric is mainly made up of SMEs, which are more vulnerable to increases in raw materials and wage costs, which they cannot pass on to prices due to the small margin they have, “so their only way out is closure with the effect it could have on employment figures.”
What has been postponed is the maturity of loans guaranteed by the Official Credit Institute (ICO), with the extension of the repayment period to eight or ten years, which helps those affected to meet their debts and not increase the insolvency figures.
At the international level, economists have pointed out that the European Central Bank’s announcement to increase the official interest rate is already having an impact on the cost of financing for the different economic sectors, both public administrations and households and companies.
The twelve-month Euribor, the benchmark interest rate for variable-rate mortgages, has already reached 1%, compared to -0.5% a year ago. “This has the consequence of increasing the cost of the mortgage and therefore reducing disposable income, already heavily affected by inflation, with the effect on consumption and savings,” they noted in their report.
On their side, they have warned that the increase in prices is reducing the household savings rate, to which must be added the increase in financing costs due to the rise in interest rates.
Source: idealista.com
