The latest batch of forecasts from the International Monetary Fund stand out from the rest of the institutions as far as Spain is concerned. In its World Economic Outlook (WEO), the team led by Gita Gopinath, chief economist of the Fund, lowered its growth projections for our country by half a percentage point to 5.7% . A cut that occurs just three months after its last diagnosis and that widens even more when compared to the predictions made in April (a cut of seven tenths).
In this way, the IMF is postulated as the least euphoric body with the Spanish recovery by putting land in between with the 6.5% announced by the Government of Spain, 6.3% by the Bank of Spain or the improvement until 6.8% carried out by the Organization for Economic Cooperation and Development (OECD). However, it improves its forecast for next year by 0.6 percentage points, when the Spanish GDP will grow by 6.4% . A figure that, yes, is still far from the 7% included in the macro table presented by the economic vice president, Nadia Calviño, and is more aligned with that of other institutions.
In general, the Spanish economic rebound will be expected this year compared to the 5.7% advance that the Italian economy will experience (with an improvement of almost one percentage point) or the 6.3% projected for France. Greece or Ireland will grow this year by 6.5% and 13% respectively . Our country should take the lead in 2022, when it will lead European growth.
Unemployment in Spain will be the highest among the advanced next year
Although the Spanish economy will resume its path as the locomotive of growth, it will also continue to be evident in terms of unemployment. The unemployment rate is only reduced by one tenth compared to last year and will stand at 15.4% in the current year. In 2022 it will be reduced to 14.8%, a level that will exceed the rest of advanced and emerging economies in Europe.
By then Greece will have an unemployment rate of 14.6%. Not only that, the Hellenic country will have reduced its unemployment by 1.8 points since 2020, almost double that in the Spanish case. In the medium term, it seems difficult for the labor market to make great progress as the IMF projects that GDP growth will gradually decline to 1.5% in 2026.
As far as prices are concerned, the Fund estimates that inflation in our country and in the euro area in general will be transitory. In the particular case of Spain, the CPI will rebound to 2.2% this year and will fall to 1.6% in 2022 , in line with the rest of our European neighbors. Contrary to sectoral wage pressures and a slight rise in nominal wage inflation in the United States, in our country there are few signs of acceleration in this regard, at least until the middle of the year.
As far as the deficit is concerned, the Government will close this year with a gap of 8.6% that will be reduced to 5% in 2022. However, as of 2023, it will remain above 4% of GDP until 2026 . For its part, the ratio of public debt to GDP will reach 120.2% in 2021 and will remain at 116% until 2025. A year later, the IMF estimates that it will rise again to 117.4% .
The institution’s fiscal projections for 2021 include support measures related to Covid, the legislated increase in pensions, and already legislated income measures. Disbursements under the EU Recovery and Reactivation Mechanism are reflected in projections from 2021 to 2024.
Recovery momentum weakens
As the Fund’s chief economist explained during her press conference in Washington, the global recovery continues, but momentum has weakened, weighed down by the pandemic. The Delta variant has raised the number of fatalities from Covid-19 to 5 million and health risks abound , which slows the full return to normality. “In general, risks to the economic outlook have increased and political commitments have become more complex,” Gopinath acknowledged.
Compared to the July forecast, the global growth projection for 2021 has been revised slightly downwards , to 5.9%, and remains unchanged for 2022, at 4.9%. However, this modest overall review hides big downgrades for some countries. It also reflects a more difficult short-term outlook for advanced economies, in part due to supply disruptions. Pandemic-related shocks in the contact sectors have caused the recovery of the labor market to lag considerably behind the recovery of production in most countries.
The growth outlook for 2021 has been revised downwards compared to the July forecast, largely reflecting the US downgrades (due to the large reduction in stocks in the second quarter reflecting supply disruptions and moderation of consumption in the third quarter); from Germany (as a result of key input shortages weighing on manufacturing output); and Japan (reflecting the effect of the fourth State of Emergency from July to September, as infections reached a record level in the current wave).
The prospects for the US, which will grow 6% this year and the next 5.2%, incorporate the infrastructure bill recently approved by the Senate and the legislation planned to strengthen the social safety net, equivalent to about 4 trillions of dollars of spending in the next 10 years.
The baseline also includes grants and loans provided by the European Union (EU) to revive their economies. The IMF estimates that the euro area will grow by 5% in 2021(an improvement of 0.4 percentage points) and 4.3% in 2022 (unchanged from July). In general, in advanced economies, the forecast of a further rebound in the first half of next year, as vaccination progresses, leads to an upward revision of the growth forecast for 2022.
In this way, the dangerous divergence of the economic outlook between countries remains a great concern for the Fund, which will keep Kristalina Georgieva as its managing director after its governing council exonerated the Bulgarian from the controversy surrounding the ranking. “Doing Business” from the World Bank.
A gap that is based on the projection that the aggregate production of the group of advanced economies will recover its pre-pandemic trend in 2022 and exceed it by 0.9% in 2024. On the contrary, it is expected that the aggregate production of the group of economies emerging and developing countries (excluding China) remain 5.5% below the pre-pandemic forecast in 2024, which will mean a further setback in the improvement of their living standards.
Although forecasts for the group have increased slightly compared to the July 2021 update, China’s outlook for 2021 has been downgraded slightly due to a larger-than-anticipated reduction in public investment. The Asian giant will grow 8% this year and 5.6% next year. Outside of China and India, whose growth will reach 9.5% and 8.5%, respectively, emerging and developing countries in Asia have slowed slightly due to the increase in the pandemic. Growth forecasts in other regions have been revised slightly upwards for 2021.
These reflect, in part, the improvement in the conditions of some exporters of raw materials , which offset the burden of the evolution of the pandemic (Latin America and the Caribbean, the Middle East and Central Asia, sub-Saharan Africa). On the other hand, stronger-than-expected domestic demand in the main regional economies raises the projections for 2021 (emerging and developing Europe) even further.