Brussels says inflation in Spain will rise to 8.1% this year

MADRID"The risks surrounding the spring [economic] forecasts have materialised." So begins the summer update of the European Commission's forecasts published on Thursday. The result: more runaway inflation and a slowdown in economic growth

The economic consequences of the war in Ukraine have upset the forecasts of escalating prices Brussels drew in spring. In the case of Spain, Commission economists now set inflation at 8.1% for 2022, almost two points higher than the rate estimated just two months ago (6.3%). The jump is significant: forecast price increases are 28% higher than only two months ago.

Despite this, the rate is still below the forecast for the European Union as a whole, which economists set at 8.3%. The reason for all this is the constant increase in energy prices, particularly gas, but also food. The situation has ended up affecting other services and goods, the Commission admits. Therefore, in the case of Spain, the EU executive admits once again that Spaniards will inevitably lose purchasing power, because their salaries will not grow as much as prices will.

This upward revision of price increases leaves the Spanish government's inflationary estimate far behind (6.5%), but also forecasts by organisations such as the Bank of Spain and the Airef. In the spring, the former put inflation at 7.5% for 2022, while Airef forecast consumer price index (CPI) at 6.2%. However, both agencies have already anticipated that there will probably be upward revisions. With a view to 2023, the Commission expects to recover "stable" inflation rates, although aspirations of reaching 2% are not likely. In the European Union as a whole, inflation will start to fall in early 2023 and fall below 3% "as supply constraints fade and commodity prices fall," the Commission notes. As for Spain, the inflation rate forecast for 2023 stands at 3.4%

Economic slowdown

While the Commission maintains that economic growth will be "underpinned", it admits that the pace of activity will be more "moderate" despite a "promising" summer tourist season. The increase in prices, added to bottlenecks and the containment of consumption resulting from a tougher monetary policy, means Brussels will maintain an economic growth of 4% in Spain in 2022. Looking ahead to 2023, growth will be 2.1%. In both cases, however, the GDP rebound is better than that forecast for the European Union as a whole (2.7% in 2022).

The forecasts, however, are still slightly more pessimistic than those presented by the Spanish government a few months ago. The department headed by Vice-President Nadia Calviño puts GDP growth for 2022 at 4.3%, and at 3.5% in 2023. Finally, one of the positive notes in the Commission's forecast is still the labour market, which according to European economists will remain "strong".

Caixabank downgrades forecasts

Unlike the Commission, Caixabank Research – LaCaixa's research service – has lowered its growth forecasts for the Spanish economy this Thursday, but for 2023. Looking ahead to next year, the bank expects Spanish GDP to grow by 2.4%, 1.4 percentage points less than the last forecast.

Despite the reduction, Caixabank Research believes the Spanish economy maintains "a positive inertia" and "a good pace" of growth, despite the "adverse context" at the international level. Specifically, at the moment, the recovery of tourism and the good pace of household consumption are the two main pillars of economic activity, which has a positive impact on the labour market, according to the entity.