MADRID – After the Spanish Chamber of Commerce adjusted downward its forecasts for economic growth, Brussels is doing the same. The European Commission cuts Spain’s growth from 6.2 to 4.6% That is almost 2 points below the government’s expectation.
The Spanish road out of the corona crisis seems to be getting more and more bumps. This is apparent from the macroeconomic forecasts of the European Commission, which cut the growth forecast of the Spanish economy by more than 1.5 points from 6.2% to 4.6%. Compared to the forecast of just four months ago, this change shows how unstable the situation is. At that time, the EC adjusted GDP growth upwards from 5.9% to 6.2%. Brussels’ forecasts are therefore also far from those of the government, which still expects growth of 6.5% in 2021 and 7% in 2022.
Spain will no longer be able to say that it is the Eurozone’s fastest-growing economy but instead takes 17th position. For Spain, this reduced growth forecast comes as no surprise, after several organisations have done the same in recent weeks.
Countries which grow faster than Spain
The forecasts for Ireland, on the other hand, have been revised far upwards. Thus, moving from a scenario of 4.6% growth in the spring to a growth forecast of almost 15%. The growth of other countries whose economies are set to grow much faster than Spain’s this year has also been revised upwards. This is even if their GDP decline during the crisis was significantly less than Spain’s. For example, this is the case, in Croatia, which will grow by 8.1%, Italy, which will grow by 6.1% or Estonia with forecast growth of 9%.
The scenario is very unstable. Community sources say there is a global supply chain crisis, ongoing energy price escalation, and higher inflation than expected. And all that puts pressure on growth and creates dark clouds on the horizon.
Context is one of strong expansion
The European Commission expects the Spanish economy to grow by 5.5% in 2022, above what it will do this year. However, that’s far less than the 6.3% growth forecast that community engineers expected in July. In other words, growth that doesn’t happen this year doesn’t just get pushed back to the next fiscal year. For both 2021 and 2022, growth will be much less than expected four months ago. In 2023, Brussels expects the economy to grow by 4.4%.
Economics commissioner Paolo Gentiloni argued in a press conference that these downward growth adjustments should be understood “in the context of a fairly strong expansion”. It will take place a little later in the calendar, but the horizon is one of growth, the Italian said.
Forecast for eurzone
The European Commission is updating the eurozone’s growth from the previous forecast, from 4.3% to 5%, and lowering its 2022 forecast from 4.4% to 4.3%. The forecast for the German economy goes from a 3.4% growth expected a few months ago to 2.7%, although this is offset by an upward revision for next year from 4.1% to 4.6%.
Labour market and shortage
“Compared to previous crises, the labour market in Spain has shown remarkable resistance,” reads the text of the European Commission. “Both the number of employees and the unemployment rate have recovered approximately to pre-pandemic levels, although approximately 200,000 workers are still subject to ERTE (1% of total employment).” And yet, despite the fact that lost jobs have already “roughly” recovered, Brussels will have to wait until 2023 to see the unemployment rate fall below pre-crisis levels. The hole may be small, but it will take years to close. From the 15.2% unemployment rate at the end of this year, the unemployment rate will drop to 13.9% by the end of 2023.
The European Commission expects the Spanish budget deficit to decrease rapidly: from 8.1% with which it would close this year to 5.2% in 2022, if European fiscal rules are still suspended, and 4.2% in 2023. The Stability and Growth Pact will be reactivated next year, bringing back to life the fiscal rules frozen in 2020 that force Member States to have a deficit of less than 3% and a public debt of less than 60%.
Spain’s government debt will also be very high. Brussels predicts that it will be just over 120% of GDP in 2021, and that the cut will be slow. By 2023, the horizon for community technicians’ forecasts, the public debt would exceed 116.9%, making Spain one of six countries with a public debt of more than 116.9%. more than 100%, together with Belgium, Greece, France, Italy and Portugal. In 2019, the number of Member States with a government debt above that level was half.