The good prospects for the Spanish economy that the Government foresees for the end of the year have once again been questioned by another international organization, in this case the Organization for Economic Cooperation and Development (OECD), which has cut its growth forecast by 2.3 points in 2021, from 6.8% projected in September to 4.5% in December. At that time, the body placed Spain at the head of the European Union (EU) in recovery, but just two months later it placed it below the community average.
This is clear from the economic outlook report that the Paris-based body has made public this Wednesday, where it highlights the brake that the Spanish economy could experience this year, at least with respect to the optimism of the summer of most international organizations and of the Government’s forecast, which continues to maintain that the Gross Domestic Product (GDP) will increase by 6.5% this year.
This is opposed by the European Commission, the International Monetary Fund (IMF) or the Independent Authority for Fiscal Responsibility (AIReF), which they have recently lowered their economic forecasts given the worsening of expectations for energy prices, problems in supply chains or the increase in cases of coronavirus in other countries. So did the National Statistics Institute (INE), which cut growth in the second quarter by 1.7 points to 1.1%; while in the third quarter it pointed to a timid advance of 2%, a figure that would not be enough to recover what was lost in the worst of the pandemic.
The OECD considers that the bulk of the recovery will carry over to 2022, when it foresees that a large part of the investments associated with European funds will be launched, although also cuts its forecasts for next year by more than one point, going from the 6.6% estimated in September to 5.5% at this time. “GDP is expected to reach pre-pandemic levels in the first quarter of 2023,” says the body chaired by Mathias Cormann, behind the rest of the neighboring countries.
“The strong recovery in private consumption, fueled by suppressed demand and the reopening of service sectors, will be the main driver of growth in 2022“adds the report, which also highlights that advances in the rate of vaccination and European funds, together with a recovery in final demand and less uncertainty, will support private investment.
Below the EU average this year
This cut in the forecasts for Spain has an immediate consequence and is that, while in September the OECD placed our economy at the head of the European Union countries in terms of recovery, this time Spanish GDP will not be able to reach the average levels of the euro area this year, which will stand at 5.3% this year. Nor will it be able to exceed the OECD average, 5.3%; nor that of the G20 countries, which will grow by 5.9%; nor the world average, which is established at 5.6% according to the agency’s estimates.
We will have to wait until 2022 for the outlook to change. It will be then when Spain grows above both the EU -4.3% -, as well as the OECD -3.9% -, the G-20 countries -4.7% – and the global average -4, 5 %-. In fact, will lead the eurozone recovery, along with Portugal and Ireland, after being one of the countries that suffered the most from the impact of the pandemic, seeing its GDP reduced in 2020 by 10.8%.
Unemployment will continue to decline until 2023
With regard to employment, the OECD highlights in its report that the labor market have been “resilient” compared to previous crises, as “job retention plans have played a key role in limiting job losses and are enabling a faster recovery.” However, it warns that the unemployment rate continues to be high, at 14.7% in the third quarter, and the high rates of youth unemployment (30%) and long-term (32%) persist.
In this context, the agency considers that the unemployment rate will close this year at 15%, to later be reduced to 14.2% in 2022 and to 13.6% in 2023. “The improvement and requalification of workers, through active labor market policies and adult training, will be essential to facilitate an inclusive recovery and reap the benefits of increasing digitization “, the text adds.
And when it comes to companies, the OECD points out that manufacturing activity “remains strong”, and the proportion of businesses facing bottlenecks due to shortages of certain inputs and raw materials, which is 22%, was lower than the EU average of 48%, according to a survey conducted in October. Likewise, the data on credit card spending for October point to a rebound in spending on tourism-related activities, including by foreigners.
While it warns that, to avoid a possible increase in company insolvency, the granting of direct aid to viable companies should be speeded up and quickly pass the insolvency bill. “Introducing reforms to remove regulatory barriers to business growth and enhance innovation are essential to improve productivity and boost growth potential,” he stresses.
Inflation will remain high
Finally, the OECD estimates that inflation in 2022 will remain high, due to carryover effect of 2021, while core inflation will remain at moderate levels. Precisely this Monday we knew the data of the advanced CPI, which has shot up in November to 5.6%, the largest increase in 29 years.
This will be, says the organization, one of the risks that the Spanish economy could face in the short and medium term and that could hinder the activity, coupled with a resurgence of the pandemic, with heavier-than-expected healing effects due to rising unemployment and insolvencies, and a slower-than-expected rate of absorption of EU funds. While a faster-than-anticipated convergence of tourism to pre-pandemic levels and a larger-than-expected impact of EU funds on economic activity, he says, could further boost growth.
Thus, it recommends more efficient employment policies for young people, speeding up the approval of the insolvency reform bill, ensuring that direct aid goes to viable companies that need it, as well as an increase in the energy efficiency of buildings to reduce energy poverty, following high prices. AND a note regarding pensions: that the reform that increases the purchasing power of retirees is in balance with long-term fiscal sustainability.