IMF downgrades Spanish GDP forecast for 2022 by one percentage point

BarcelonaThe global economic outlook – with a war raging between Ukraine and Russia and an unchecked escalation of inflation – has changed a lot since the last predictions of the International Monetary Fund (IMF). This Tuesday, the organisation has published a significant downgrade in its estimates with regards to the ones it shared last January. In the case of Spain, the last few months of geopolitical turbulence have resulted in a reduction of the GDP forecast for 2022 by one percentage point, to 4.8%. The forecast for 2023 is also somewhat less optimistic and down five tenths, to 3.3%.

"This crisis has been unleashed while the global economy was in the process of recovering from the covid-19 pandemic", but had not yet fully recovered, the IMF states. The institution headed by Kristalina Georgieva also considers lockdowns in China and their impact on industry supply chains. "Overall the risks to economic forecasts have risen sharply and trade-offs have become increasingly challenging," it adds.

The report downgrades its global GDP growth forecast for 2022 by eight-tenths to 3.6%, and cuts next year's growth forecast by two-tenths also to 3.6%. No major economy escapes this worsening of forecasts, although Germany is the main victim (losing 1.7 points), obtaining the worst forecast of the entire continent with an increase of 2.1% this year.

The impact of the war in Ukraine

Although the IMF admits that it is impossible to obtain precise data on the damage to GDP caused by the war, it expects the Ukrainian economy to contract by 35% in 2022. In this regard, it notes that even if the invasion is over soon, "the loss of life, destruction of physical capital, and exodus of citizens will prevent normal economic activity for years to come." As for Russia's GDP, the IMF expects an 8.5 percent slump exacerbated by the effect of sanctions on the country's trade ties, the disconnection of some Russian banks from Swift payment system and the boycott of Russian oil and gas by powers such as the United States.

The complications in the energy sector are of concern to the IMF, which believes that a reform of fuel prices would help in the transition to a greener model and the reduction of the dependence on Russia that the war has made apparent. It therefore believes that these measures would have to be complemented by more subsidies for renewables and increased investment in sustainable energy infrastructure. "When energy prices are high, reforms are less popular, but the rise in global fuel costs makes clear the need to shift to clean forms of energy that are much less dependent on international fluctuations," the report says.

As expected, the IMF is also more pessimistic about the moderation of inflation compared to its last publication. The institution assumes that this impact will last even longer and puts the average figure for advanced economies at 5.7%, a jump of 1.8 percentage points. "Although a gradual resolution in supply-demand imbalances and a modest pickup in labour supply are expected to ease prices, uncertainty once again surrounds the forecast. Conditions could deteriorate significantly," the paper warns.