Spain | All expansions die out, you just have to give them time

Summary

The loss of purchasing power, together with the growth of the financial burden and volatility in the markets, may lead to a prolonged period of low growth instead of a moderate, one-off recession.

Key points

• Key points:
• The indicators known up to the first half of March suggest that far from showing a contraction, GDP in Spain could increase by between 0.3% and 0.5% in 1Q23 (0.2% in 4Q22). Social Security affiliation might be advancing at a rate of 0.9% in 1Q23 compared to 0.4% in 4Q22.
• The resilience of domestic demand is due to the use of savings accumulated during the pandemic, the increase in income of both retirees and the recipients of SMI (national minimum wage) and the IMV (minimum living wage), and the impact of the acceleration of the execution of NGEU funds.
• However, the strength of demand has had a negative effect: a deterioration in the outlook for inflation. Although total inflation is falling, it is due to the performance of a small number of goods.
• This context of moderate growth in activity and high inflation may persist during the coming months. In order to contain prices, the government should try to broker an agreement between workers and employers to limit price increases.
• It would also be important to announce an increase in resources to monitor competition and move forward in consolidating the independence of the responsible authorities. Finally, fiscal policy should also contribute to lowering inflation.

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