Spain | Growth in a more adverse international environment

Summary

While real-time indicators of GDP growth in Spain point to an acceleration in the second quarter compared to the first, uncertainty has increased significantly due to the risk of an international recession.

Key points

• Key points:
• All indications are that interest rate hikes in the United States will cause at least a short-lived recession and that growth in 2023 will be rather anaemic.
• Meanwhile, Europe is facing a bleak winter ahead with the threat of curtailed gas supplies from Russia and rising gas prices, along with increased financial fragmentation.
• Thanks to European funds, Spain will be able to outpace the Eurozone next year with growth of around 1.8%, albeit 2.3 points less than in 2022. This economic slowdown coincides with an increase in inflation forecasts to 7.9% in 2022 and 3.2% in 2023, with a high ensuing social cost.
• Against this complex backdrop, the government may move to protect the most vulnerable segments of society from price increases by deploying direct, temporary and targeted measures. This might include a pacto de rentas (income-sharing pact) to prevent imported inflation from becoming a problem of inflation in goods and services produced in Spain, through a wage-price spiral.
• The government should also put in place a credible roadmap towards budgetary stability in the medium to long run to ultimately ensure a primary surplus of public accounts, while also providing certainty and credibility, with measures that do not serve to generate further uncertainty or turn out to be counter-productive due to their effects on economic activity and prices.

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