The IMF cuts its forecast for Spain to 4.8%





The impact of the war in Ukraine and rising inflation have led to International Monetary Fund (IMF) to cut your Spanish economy growth forecast one point for this year and a half point for the next one, until leaving it in 4.8% for 2022 and 3.3% for 2023in a context of a general slowdown that will significantly curb economic growth on the planet when the COVID-19 crisis had not yet been overcome.

Despite the notable reduction compared to two months ago, Spain is better off than other European countries in the last report of World Economic Outlook, which is published this Tuesday just before the spring meeting of the IMF and the World Bank. Germany and Italy, for example, see their growth prospects reduced by 1.7 and 1.5 points, while the European Union and the eurozone lose 1.1 points.

Among the large European economies, only France has a lower cut than Spain. And the IMF continues to estimate that Spain will be the European economy that will grow the most in 2022, with the sole exception of Ireland and at the same level as Malta, well above the European Union average, which he calculates at 2.9%.

In any case, the estimates of the Fund are already very far from the forecasts of the Spanish Government, which has not yet revised the 7% that it estimated at the end of last year. The President of the Executive, Pedro Sánchez, admitted this Monday that these calculations will have to be modified downwards, as the Bank of Spain or the Independent Authority for Fiscal Responsibility (AIReF) have already done, although he insisted that growth will continue to be “robust “.

The threat of inflation

The greatest threat to the Spanish economy, as Sánchez himself recognized, is inflation: prices were already rising sharply before Russia invaded Ukraine, but the war has spurred this escalation by shooting up the cost of energy, which affects the entire productive structure. In March, the Consumer Price Index (CPI) soared to 9.8%, the highest year-on-year rate in 37 years.

In this way, the IMF is pessimistic about the global evolution of prices in the short and medium term: “Inflation is expected to remain elevated longer than in the previous forecast [de enero]because of the war, which will induce increases in the prices of raw materials and will extend inflationary pressures,” he says in the report, which warns that central banks may be forced to raise interest rates.

For Spainspecifically, the Washington-based agency estimates an average rise in prices throughout the year of 5.3%, two points more than that registered in 2021 and, if confirmed, the highest so far this century, although below the 6.3% that AIReF predicted a few days ago. In 2023according to the IMF, this rise would moderate until 1.3%which points to a bulky but transitory inflation process.

The highest unemployment in all of Europe

As for the rest of the forecasts for the Spanish economy, the estimate for the unemployment rate for the next two yearssince, although the prospects are better than those of October 2021 -when the last full IMF report was published-, Spain continues to be the country with the most unemployment in all of Europe.

Thus, the report estimates that the unemployment rate will stand at 13.4% in 2022 and will drop slightly in 2023, to 13.1%. Only Greece is close to that figure, while countries like Italy and France will be below 10%, and Germany or the United Kingdom will be close to full employment.

Refering to trading position from Spain, the IMF forecasts a slight current account surplus for 2022 and 2023, of 0.3% and 0.4% of GDP, respectively. Also well below the large European economies, with the exception of France, which will deepen its trade deficit.

All this, in any case, subject to notable uncertainties: from the bottlenecks in supply chains, which persist after the pandemic in many sectors, to the massive lockdowns in China, the world’s leading manufacturer. And above all of them, the war in Ukraine. “The most immediate priority is to end the war,” emphasizes Pierre-Olivier Gourinchas, chief economist of the IMF, in the report.aware that all these forecasts could be a dead letter in just a few weeks.


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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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