The International Monetary Fund expects economic growth in Spain to slow in 2023 on higher prices and flagging demand before rebounding to pre-pandemic levels in 2024, it said on Wednesday in its country report.
Growth is expected to be weak in the coming quarters reflecting a plunge in consumer confidence due to a cost of living crisis and weak demand, the IMF said in its report. Activity will accelerate towards the end of the year, helped by European Union recovery fund spending and improved supply, it said.
“We do not forecast a technical recession, but growth will be close to 0% in the last quarter of this year and the first quarter of 2023,” Dora Iakova, IMF mission chief for Spain, said in a call with journalists.
Although the IMF warned of many downside risks, notably from the impact of energy prices, it expects gross domestic product to grow 4.6% in 2022, up from its previous forecast of 4.3% in October, and slow to 1.2% in 2023, above the average of euro zone countries.
The improvement is attributed to the robust labour market and to an especially strong performance by tourism and other services.
The country’s headline and core inflation are likely to remain above the European Central Bank’s 2% target until 2024, while its industrial output is projected to reach pre-pandemic levels by early 2024, the IMF added in the report.
Iakova said headline and core inflation will converge in 2023 at around 4.5%.
While the report welcomed the rapid rollout of government support to mitigate the impact of rising prices, it regrets that the measures are not targeted and have led to market distortions.
“Most of the fiscal support has gone to measures that are untargeted and distort price signals, such as electricity tax reductions and fuel rebates. The latter have been fiscally costly, with benefits accruing disproportionately to higher-income households,” the IMF said in the report.