Spain | Economic recovery underway, but slower than expected

Summary

The economy of the Basque Country, although showing a recovery, is less dynamic than expected last spring. GDP growth in 2022 will be somewhat higher than in 2021, around 5.5%, and by the end of 2022 there might be a return to the pre-crisis level of activity.

Key points

• Key points:
• BBVA Research forecasts suggest that by 2021 activity in the Basque Country could have increased by close to 5%. The COVID crisis concentrated in more intensive sectors in the Mediterranean and, especially, in the island communities. This helps explain why Basque GDP declined less in 2020, but will display slower regrowth in 2021.
• Government activity weighs less than in other communities, but European funds should have allowed an investment of 1 point more of GDP this year. However, delays in management will limit this figure to half a point, decreasing and delaying its effects on growth over time.
• The demand drive combined with supply-side difficulties is generating inflation, which is already forecast to be one of the key risks facing Europe in the short term, particularly if it translates into wage and income indexation, with price margins staying constant.
• The intensity of contagion caused by the new Omicron variant, the rise of energy prices and the difficulties in solving supply problems suggest that growth restrictions will continue to be felt at least into the first half of 2022.

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