The Spanish economy will escape the recession. The Bank of Spain joins the organizations that point to a better behavior than expected in the activity, which will translate into minimal growth in the last quarter of this year, a single tenth, to remain weak at the start of 2023 (not figures are given) and gradually recover strength from the second quarter of next year. All subject, the bank insists, to great uncertainties. The improvement as of spring due to lower inflation, the reduction in energy prices, the deployment of Next Generation funds and the resolution of distortions in global supply chains.
In this way, the Bank of Spain increases the growth forecast for this year by one tenth, up to 4.6%; and it reduces one tenth that of 2023, to 1.3%, the latter largely due to the worsening of the external context. The forecast for next year is much lower than the 2.1% that the government maintains in its macroeconomic chart.
The slightly upward revision this year is explained by the fact that the final stretch of the year has not been as bad as expected. Despite the strong sluggishness of growth, it has been held up by the good performance of the labor market, and by the fiscal drive deployed in recent months. However, the weakness of consumption has been especially noted. In this fourth quarter, the boost in household spending has faded, due to the increase in prices and interest rates, while the savings pool accumulated during the pandemic is practically not noticeable in consumption.
On the other hand, in the last three months employment has shown stability and the reduction in temporary employment has continued. Affiliation to Social Security shows an upturn in construction and is maintained in services, while it is weaker in industry and especially in agriculture.
Another element that the Bank of Spain highlights is that the conversion of temporary contracts into indefinite ones that the labor reform has allowed may have increased household consumption between 2,000 and 3,000 million euros in the last year. He reaches this conclusion based on two pieces of evidence, such as the increase in the percentage of household income spent on rent for employees with a permanent contract compared to those who have a temporary contract, and also how this expense increases by 20 % when a temporary contract becomes permanent.
Applying various approximations to this starting point, the Bank of Spain calculates an increase in spending on income of between 0.3 and 0.4 percentage points, which translates into around 2,000 and 3,000 million euros.
On the other hand, the Bank of Spain certifies the moderation of inflation, placing it at 8.4% this year, which is three tenths less than what was calculated in October; and 4.9% in 2023, seven tenths less. This slowdown in prices is largely due to the slowdown in energy, while food prices have continued to accelerate, to 14% growth in November.
In any case, the forecast is for inflation to remain at high levels for several quarters in a context in which significant second-round effects have not yet been seen due to wages or business margins. However, in this field there is a great difference between sectors, with higher business margins in manufacturing and the extractive and energy industries, and, conversely, very weak in construction.
In any case, the Bank of Spain report warns that this moderation in prices is highly conditioned by how energy prices evolve.
