Spain to repeat as EU’s largest economy in 2023 with highest inflation: 4.8%, double than expected

  • The OECD lowered its growth forecast for Spain by 1.4 points and raised its average inflation forecast by 5 points

Inflation in Spain was due to fall to around 2% in 2023, Which would go on to rank the country as one of the EU states with the lowest price increase next year. This was predicted by the government, the European Commission, the IMF and the Bank of Spain, but it was Before the EU approved economic sanctions against Russia. now OECD warns that CPI to grow on average 4.9% next yearTriple the forecast in December and the largest increase in EU powers.

,War in Ukraine dashes hopes That inflation growth experienced in most parts of the world economy in 2021 and early 2022 reduce fast, Additional increases in food and energy prices and worsening supply chain problems mean that inflation of consumer prices later peak You higher level higher than expected,” warned the OECD in its latest report on economic projections published this Wednesday.

Prices to rise again in Spain by 4.9% Next year, an increase that will be added to those already registered this year – 8.1% on average – and that will make households poorer and companies less competitive. Price increases in other countries will be a bit more moderate: in France they will upload a 4,5%, In GermanyAnd 4.7%, In ItalyAnd 3.8%, In PortugalAnd 4%, In GreeceAnd 3.4%and on average the whole EurozoneAnd 4.6%,

New OECD inflation forecast triples They had in December, when they expected inflation to rise in Spain next year.1,5%, and imitates what the rest of the organizations presented to Spain: the The European Commission Forecast in May that inflation will pass 1.8% in 2023; bank of spain In his Macroeconomic Estimates, he 2% And this FMI I came to keep her 1.3%.

Other study services like Funkas had forecast a rebound in average prices for 3.6% with him; Caxabank Research bet on it 2,2%, Chamber of Commerce pointed to 3%;CEOEAli 2,1%, You SantanderAli 2,5%, The all-new OECD is far from forecast.

This conjecture also clashes with each other official figures presented by the government in its 2022-2025 sustainability program, while the executive estimates that GDP deflator (Indicators used to measure price growth that take into account all products in the economy and not just the consumption basket, such as the CPI) There will be a loss of 2% In 2023, our OECD last that deflector upload 4.6% He next door.

For this year, the government expects the deflator to increase 4% On average, a figure in which it coincides with the OECD, which puts it 3.9%.

the problem of expectations

inflation a word that appears 860 times in the 231-page document submitted yesterday by this institution and this is its main concern, because it is precisely what will provoke a collapse of domestic demand and consumption A sharp slowdown in further growth in many countries. In SpainPrivate consumption grew by only a tenth this year, causing the OECD to slash growth Start unless 4,1%Compared to the 5.5% it was considering in December.

,The world economy will weaken rapidly. We estimate that global growth will be 3% in 2022 – compared to an estimated 4% last December – and 2% in 2023. Inflation is now estimated at around 9% OECD countries in 2022, double Much more than what we previously anticipated. High inflation around the world is destroying real disposable income and household standard of living and in turn consumption. Uncertainty stifles business investment and threatens to curtail supply in the coming years. At the same time, China’s COVID-zero policy is weighing heavily on global prospects, undermining domestic growth and disrupting global supply chains.”

Although they believe that inflation will help reduce the burden of debt—and that of public debt, they also destroys income, savings and purchasing powerand can affect the profits of companies and Ability to invest and generate employment.

“The inflation a burden that should be shared equally Between people and companies, between profits and wages. Governments also have a role to play by targeting the most vulnerable to offset rising food and energy inflation.”

OECD Used to be first body In forecasting such high inflation for the next year, which is at risk Expectations of agents, because if the idea that prices will rise sharply next year is consolidated, it will affect the behavior of individuals and companies.

To avoid second round effectsExpectations are important, because if a company It assumes that the price of its intermediate goods will increase by an average of 5% over the next year More incentive to raise final prices What if you think prices are going to moderate. The same happens in the labor market: if a Staff confident that prices will continue to rise next year, you will have More reasons to ask for a pay raise.

The main reason is in the war and, in particular, in sanctions Approved against Russia: “Although alternative supplies can be found in world markets at higher prices and shortages can be avoided, as assumed in baseline estimates, The ban is expected to increase inflation and stunt development, especially in europa“, Told.

They also warn that “next lien on the European Union carb and to oil import by sea probably from russia will drive up the prices even more Global energy market next year, keeping Headline inflation high for a long time”.

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