IMF raises Spain’s growth to 5.2% in 2022 and drops to 1.1% in 2023

The International Monetary Fund (IMF) increased its estimate of growth for the Spanish economy in 2022 by 6 tenths this Thursday, which it now stands at 5.2%, while the outlook for this year fell by one tenth, to 1.1%.

The agency published today a review of its figures and confirmed that Spain will avoid recession this year, at a difficult time for the global economy due to the prolongation of the war in Ukraine.

The improvement in tourism and other services and the increase in employment to levels higher than those prior to the pandemic explain the improvement in the estimate for 2022, while the lower growth this year will be due, according to the fund, to the higher cost of prices, the tougher financial conditions and the lower external demand.

The Fund notes that “uncertainty surrounding the outlook is significant” with downside risks from tighter-than-expected financial conditions, weaker global demand and higher energy price volatility.

But it also points to the possibility that forecasts improve with an accelerated use of NGEU funds, which the EU has earmarked to repair damage from the pandemic, and a rapid liquidation of household savings that could boost domestic demand.

This year, the IMF points out, economic activity in Spain has remained resilient “despite new headwinds posed by the fallout from the Russian invasion of Ukraine” and thanks to the strong rebound in tourism and other services that has supported growth, with employment having exceeded its pre-pandemic level.

“However, high global energy and food prices, weakening growth in trading partners, deteriorating consumer and business confidence, and rising interest rates have held back the recovery in output.”, noted the IMF.

Thus, this drop from 5.2% in 2022 to 1.1% in 2023 reflects the effects of high energy and food prices, tighter financial conditions, and weaker external demand.

In any case, the Fundpraises” to Spain for the measures approved to alleviate the effects of the rise in energy prices on families and companies and appreciates the steps taken in the 2023 aid package, while insisting on continuing with the actions to reduce dependency of fossil fuels.

Production is projected to reach its pre-pandemic level in early 2024 and headline inflation is projected to continue to moderate gradually in 2023.