The Bank of Spain advances the recovery of GDP to pre-COVID levels and prepares an improvement in forecasts

The Bank of Spain trusts that the Spanish economy can recover the levels it had before the outbreak of the pandemic at the end of 2022 or, at the latest, at the beginning of 2023, as advanced today by the General Director of the Bank’s Economy and Statistics from Spain, Óscar Arce. On Monday the agency will review its economic forecasts. In its previous projections in March, it did not expect a GDP recovery to pre-COVID levels until mid-2023, after cutting its growth estimates.

The general director of Economy and Statistics of the Bank of Spain, Óscar Arce, has advanced, in a forum organized by El Confidenciale and Ibercaja, that Spain will recover pre-crisis activity levels at the end of 2022. “If the recovery path that is being projected is maintained, within a year and a half that level of activity of 2019 can be recovered, but be careful because there will be important scars that will take years to solve, such as public debt.”

Next Monday, the Bank of Spain will review its projections for the economy in the coming years. In the previous ones, carried out in March, it worsened its prospects by sharply lowering the GDP estimates for this year and delaying the start of the recovery for the second quarter. The previous painting established, on the central stage, the return of GDP to pre-health crisis levels in mid-2023.

Now the main economist of the Bank of Spain, trusts that “within a year and a half” Spain can recover those levels of wealth prior to the pandemic. Since March, the economic sentiment due to the advance of vaccination has improved and is being accompanied by good economic data on activity and employment.

The forecast made yesterday by the European Central Bank for the euro zone estimates that pre-crisis GDP levels will recover in the first part of 2022, specifically in the first quarter, although in the case of Spain, Arce explained that for the weight of tourism the economy has suffered more and it will take longer to recover the level of activity.

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According to Arce, we must begin to emphasize how to heal the scars of the crisis and how to prepare the Spanish economy to face the “enormous challenges” that it already had and that the crisis has made more evident. The increase in public debt has been “very high”, he recalled, and at the end of the first quarter it reached 125% of GDP, almost 30 points more than a year earlier, however, the origin lies in the measures to face the crisis, reason why it considers that this increase was “absolutely necessary”.

Furthermore, the Bank of Spain continues to favor an expansionary policy in fiscal matters for the duration of the pandemic, although it insists on the need to have a plan to reduce these “very large” levels of public debt and deficits.

In this way, the fiscal consolidation process could be undertaken as soon as the economic recovery is consolidated because it is “fundamental” to rebuild the margin of fiscal policy so that Spain is prepared for future crises.

Take advantage of European funds to carry out reforms

In this sense, it has not only highlighted the fundamental role of European funds in addressing the structural reforms required by the economy, but it has also emphasized the need to have annual General State Budgets (PGE), as well as in the design of a roadmap for fiscal consolidation, to be implemented when the crisis has been overcome.

“That such a strategy exists can help the credibility of the Government on its determination to carry out the margins of fiscal action, as the United Kingdom has already done, which has already announced the skeleton of its strategy to reduce the deficit and the debt, “Arce recalled.

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It was necessary and continues to be necessary to maintain an expansive fiscal and monetary tone“, has remarked Arce, after clarifying that as the crisis fades, the measures should be” more surgical “directing them to those who need it most.

The SMI report has only technical motivations

Asked about the report published this week of the rise of 22.3% in 2019 in the Minimum Interprofessional Salary (SMI), Arce has defended the methodology used to reach the conclusions set out and has assured that the intention of the Bank of Spain is not ” go further “with possible recommendations on the subject to the Government.

“We stay where we have been able to go, we do not intend to go any further. The motivation for the work is technical,” he assured.

As he recalled, when the intention to apply this rise was reported, the governor of the Bank of Spain, Pablo Hernández de Cos, already warned about its impact on employment, although he did so with the “caution” to ensure that a “finer and more relaxed” estimate after approval.

For these conclusions, Arce has defended that it has tried to use the “widest possible” range of data sources, as well as several possible methodologies and discussions with union representatives, employers and experts. “We like to check robustness using alternative approaches,” he remarked.

Despite the effect on employment found in the report, Arce has indicated that the unit impact is in line with other similar studies for other historical moments and has indicated that in relative terms it is also in line with what is happening internationally.

Success with minimum tax in companies

Regarding the agreement of the G7 to apply a minimum rate of 15% in corporate tax to multinationals, Arce stressed that it is an “absolutely welcome” development, with an “undoubted” value. However, he believes that there are probably many years left to gut important details of the implementation of that initiative.

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He has pointed out that the value of international cooperation in the case of this tax is “particularly high” because the tax bases are easily movable, especially in the case of large corporations.

Inflation will remain above 2%

For Arce, the CPI data for the month of May, up to 2.7% year-on-year, known this Friday, is a “considerable but widely expected” rate and has anticipated that this year inflation rates above 2% will continue to be recorded. , both in Spain and in the euro zone. “We are facing a temporary moderate outbreak of inflation that is expected to moderate in the next quarter, after rates above 2% are observed,” he anticipated.

The consensus of analysts believes that this inflationary tension will be temporary in nature that will begin to subside as of next year, with a gradual slowdown until in 2023 it is around 1.4 or 1.5%, according to the ECB.

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