The Spanish economy has outperformed expectations, as the European Commission raised its GDP growth forecast for Spain in 2023 by five-tenths. Brussels now predicts a GDP growth rate of 1.9% for the current year, while maintaining the expansion forecast of 2% for 2024. Additionally, the European Commission has downwardly revised its inflation estimate to 4%, which is four-tenths lower than its previous winter projections.
According to the European Commission's Spring Macroeconomic Forecast, Spain is projected to be the fastest-growing country among the four major European economies this year. Italy, France, and Germany are expected to fall behind Spain, with growth forecasts of 1.2%, 0.7%, and 0.2% for 2023, respectively. Notably, Germany's estimate has remained unchanged compared to the winter forecast.
Paolo Gentiloni, the European Commissioner for Economy, emphasised that Spain's growth forecast of 1.9% for 2023 remains "well above the European Union average," thanks to the country's Recovery and Resilience Plan and robust labour market. Specifically, Spain's growth projection surpasses the euro area average by eight-tenths. The European Commission has raised its overall forecast for the euro area by two-tenths for 2023, projecting a growth rate of 1.1%, and by one-tenth for 2024, expecting a growth rate of 1.6%, largely driven by the decline in energy prices.
While Brussels remains optimistic about the economic performance of most EU partners, except Belgium and Luxembourg, it acknowledges potential "downside risks" related to interest rate hikes and their impact on households with mortgages. Despite the European Central Bank's recent decision to ease monetary stimulus, interest rates remain at levels not seen since 2008, ranging from 3.25% to 3.75%.
Another risk highlighted by Brussels is the possibility of higher-than-expected wage increases. In Spain, a new Agreement for Employment and Collective Bargaining (AENC) was signed less than a week ago by the UGT, CCOO, CEOE, and Cepyme unions. The agreement recommends a wage increase of 10% over three years, from 2023 to 2025, with a specific increase of 4% for 2023 and 3% for 2024 and 2025. These figures establish a framework for negotiating collective agreements.
Regarding inflation, the European Commission's spring forecasts indicate a moderation in price growth for 2023, lowering the inflation estimate by four-tenths to 4% for the year. However, while maintaining the path of price moderation for the following year, Brussels has raised the inflation forecast for 2024 by three-tenths to 2.7%.
The projected inflation for 2023 aligns with the April data, which confirmed a 4.1% increase in prices over the past year, representing an eight-tenths rebound compared to the 3.3% decline registered in March due to the conflict in Ukraine.
Both Spain's forecast for 2023 and 2024 remain below European levels. Brussels expects inflation in the euro area to decline at a slower pace than previously anticipated, raising the inflation forecast by two-tenths to 5.8% for 2023 and by three-tenths to 2.8% for 2024. A similar trend is expected for the European Union as a whole, with the European Commission revising its inflation outlook upward by three-tenths for both years, projecting rates of 6.7% for this year and 3.1% for the following year.
"Spain will be one of the European countries that will grow the most in 2023, which will allow it to lead growth among the main economies of the euro zone for the third consecutive year," said the department directed by Nadia Calviño. The Ministry of Economic Affairs also stresses that, according to forecasts, employment will maintain its dynamism during 2023 and 2024, with growth above the euro zone average, "which will allow the unemployment rate to continue to be reduced".
September 26, 2023
September 22, 2023