MADRID – According to OECD forecasts, the Spanish economy will close this year with a 6.8% year-on-year increase in the gross domestic product (GDP). If the forecast comes true, Spain will be the European country with the strongest economic rebound this year.
According to the preliminary version of the Organisation for Economic Co-operation and Development’s (OECD) second report on the economic outlook for 2021, which was made public on Tuesday, Spain would leave behind the United Kingdom – whose GDP would pick up 6.7% – France (6.3%), Italy (5.9%) and Germany (2.9%). The scale of the rebound would also be greater than that of the G-20 economies (6.1%). And also of the Eurozone as a whole (5.3%). Only India (9.7%), China (8.5%), Turkey (8.4%), and Argentina (7.6%) would grow stronger than Spain.
Growth of 6.6%
Moreover, the organisation forecasts economic growth of 6.6% for Spain in 2022. This is a figure that only India, where GDP is expected to grow by 7.9%, could surpass. The OECD revised upwards its May forecast for most European economies. For Spain, the forecast for 2021 was revised up by 0.9%, from 5.9% to 6.8%. And for 2022, it was revised by 0.3%, from 6.3% to 6.6%.
From bottom to top
If these calculations come true, Spain would be one of the OECD countries with the strongest growth in the next two years. Especially since experiencing the biggest economic slump in 2020, with a 10.8% drop in GDP compared to 2019.
However, in the absence of forecasts from the Bank of Spain, which will be made public later on Tuesday, the OECD estimate is the most optimistic of the expectations for Spain expressed this year by national and international organisations. The estimate points to a trend of upward growth given the good progress in the recovery.
OECD more positive than Spanish government and European Commission
At 0.3%, the OECD is even more optimistic than the Spanish government, which in its macroeconomic scenario of 27 July predicted GDP growth of 6.5% in 2021 and 7% in 2022. These estimates were confirmed by the government’s First Vice-President and Minister of Economy and Digital Transformation, Nadia Calviño.
The OECD’s growth forecast for this year is also higher than that of BBVA Research in August, which is in line with that of the government, and that of Spanish think-tank Funcas, which in July predicted a 6.1% increase for the next two years. The OECD estimate is more optimistic than that of the European Commission, which in early July predicted an increase of 6.2% for 2021 and 6.3% for 2022.
What does it mean for the consumer?
In terms of consumer prices, the OECD forecasts that Spain will have inflation of 2.4% in 2021. This is 0.8% higher than expected in May. This figure would be slightly mitigated in 2022 when consumer prices are forecast to rise by 1.9% year-on-year. Rents, pensions, tolls, and even public car parks will become more expensive due to high electricity prices.
The inflation forecast for Spain is slightly higher than in other European countries – only Germany, with a forecast of 2.9%, would exceed the price increase in Spain. However, the picture changes significantly if the most volatile goods (energy and unprocessed food) are excluded from the calculation.
Without these products, core inflation would be 0.4% at the end of 2021, 1% lower than in the Eurozone. Core inflation would be 2% in Germany, 1.2% in France, and 0.7% in Italy. The OECD estimate is 1.3% in Spain in 2022, which is 1.1% higher than last year.
Back to pre-crisis levels
The economic recovery continues in developed countries, a dynamic that has brought global GDP back to pre-crisis levels. However, the return to economic normality is not universal, with low-income countries lagging furthest behind. The OECD notes that while “the strong rebound in Europe, the likelihood of additional budget support in the US in 2022 and lower household savings will boost growth prospects in advanced economies”, many emerging markets have not yet reached their pre-crisis production and employment levels, especially those “where vaccination coverage is low”. The differences in vaccination progress are clearly reflected in the impact that the delta variant has had on different economies.
Continue vaccination and support
The OECD states that the damage caused by the delta variant has so far been ‘relatively small in countries with high vaccination coverage; but elsewhere it has ’caused short-term delays’ and ‘increased pressure on global supply chains’.
It, therefore, calls for ‘greater international efforts’ to encourage countries lagging behind in their vaccination campaigns to increase vaccination coverage. This is an action that would be ‘in their own interest and in the interest of the whole world’.
Nevertheless, the OECD warns that uncertainty is still ‘considerable’ and recommends that governments maintain supportive economic policies and budgetary flexibility. It also points out that ‘premature and abrupt withdrawal of supportive policies should be avoided as long as the short-term outlook remains uncertain’.