The Bank of Spain has improved its growth forecasts for this year and next year thanks to the improvement in the healthcare context and the recovery of the environment.
Specifically, it estimates that GDP will grow in 2021 to 6.2% compared to the 6% forecast in March, while for 2022 it forecasts an increase in GDP of 5.8%, five tenths more than before. In this way, the organism’s economists have anticipated the recovery of the previous level of production to the pandemic at the end of 2022. In addition, it has been reported that the economy will grow at a rate of 2.2% in the second quarter.
The Bank of Spain has certified today that the beginning of the recovery after the impact of the coronavirus for the Spanish economy. The director general of Economy and Statistics of the organization, Óscar Arce, has pointed out, in the presentation of the projections, that the current information available also suggests a notable rebound in activity in the second quarter. With all the precautions, he has anticipated that GDP could rise to 2.2% in the quarter-on-quarter rate in the central scenario of these projections.
The economist has warned that uncertainty about the magnitude of the rebound is high, but there is an improvement in qualitative indicators, such as Social Security affiliation and household spending, which would be being driven by the improvement in confidence.
The withdrawal of containment measures, especially as a result of the state of alarm declining on May 9) and the progress in the vaccination campaign, is allowing a rapid recovery of the activity. Also due to the expansive behavior of goods exports.
The beginning of the recovery has allowed the Bank of Spain to improve its GDP growth forecasts to 6.2% and 5.8% in 2021 and 2022, respectively. The lower incidence of the pandemic, against the background of the advance in vaccination, and the execution of projects under the umbrella of European funds from the Next Generation EU (NGEU) program would give rise, under this central scenario, to high growth rates of the activity in the second half of this year, which would also have a high positive impact on the growth of GDP in the average of 2022, explain from the Bank of Spain.
Positive impact of the European reconstruction fund
European NGEU funds will have a positive impact of one percentage point in 2021, 2.4 percentage points positive in 2022 and 1.8 percentage points in 2023, Arce explained. The Bank of Spain still does not collect the potential benefit of the aid.
These projections still include around 50% of the amount of European funds announced by the Government for this year, considering both the Recovery and Resilience Mechanism (MRR) and the so-called React-EU funds, which together represent some 27,000 million euros. For the entire projection horizon, absorption would be slightly above 80% of the total funds available in the form of transfers, with the greatest boost concentrated in 2022.
The level of GDP prior to the health crisis would be reached by the end of next year, Arce stressed, who stressed that it is still too early to assess the permanent effects that the coronavirus has left on the Spanish economy. It will depend, mainly, on the rate of reduction of the savings rate and the footprint left by the pandemic on the productive fabric, he pointed out. In addition, it has not ruled out the dreaded hysteresis on long-term unemployment.
Two more scenarios in addition to the central one
Due to the degree of uncertainty, although it has been significantly reduced, the Bank of Spain prepares two other scenarios in addition to the central one to prepare its projections. Under the favorable scenario, with an improvement in the evolution of the pandemic, GDP would grow by 6.8% this year, less than the 7.5% forecast in March; while in the adverse, with a rebound in infections, it would rise by 4.6%, somewhat higher than the 3.2% estimated in the third month of the year.
As for 2022, GDP would increase by 7% in a favorable scenario, higher than the 5.5% estimated in March, while in the adverse scenario it would rise by 5.2%, higher than the 4.6% previously forecast.
With all this, in the favorable scenario, GDP growth in 2021 would be somewhat higher than in the central scenario throughout the entire projection horizon, which would allow the economy’s output to stand, at the end of 2023, 4.2 percentage points above the pre-crisis level.
On the contrary, the more moderate pace of GDP recovery under the adverse scenario would cause it to still be slightly below its pre-crisis level at the end of 2023.
Improve unemployment projections for the next few years
As for estimates of the unemployment rate, it will stand at 15.6% this year, below the 17% previously estimated, while it would drop to 14.7% in 2022 and 13.7% in 2023. “This recovery of employment would allow unemployment to be reduced, until it is below pre-pandemic levels since the end of 2022, “said Arce.
On its side, the public deficit will remain this year at 8.2% of GDP and will stabilize at around 4.9% in 2022 and 4.3% in 2023. The debt will exceed 120% of GDP this year ( 120.1%), while it will drop to 117.9% in 2022, rising again slightly to 118% in 2023.
Likewise, the net global impact on the public deficit of the measures approved this year to improve the solvency of companies, the extension of ERTE and the cessation of activity of the self-employed amounts to 2.1% of GDP, two percentage points less than in 2020.
In addition, in the medium term, the recovery in activity would cause a certain rebound in core inflation, measured by the HICP excluding the energy and food components, to 0.3% in 2021, 1% in 2022 and 1.1% in the average of 2023. In terms of headline inflation, this rate would be 1.9 in 2021 and 1.2% in 2022 and 2023.