Bank of Spain hints at faster economic growth in 2022

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Spain’s economy is expected to bounce back in the second half after a slow start to 2021 and could grow more than expected next year driven by a delayed boost from EU recovery funds, Bank of Spain Chief Economist Oscar Arce told reporters.

In its latest economic outlook from March, the central bank expected gross domestic product, which last year slumped by a record 10.8% due to the COVID-19 pandemic, to expand by 6% in its central scenario this year and by 5.3% in 2022.

On Thursday, it said in an annual report that Spain’s economic recovery also hinged on the progress of the COVID-19 vaccination campaign, the implementation of reforms in the labour market and pension system, as well as private consumption.

It also warned that the pace of recovery in international tourism, which in 2019 accounted for more than 12% of Spain’s GDP and now represents just around 4%-5%, was still uncertain, clouding the prospects of an economic rebound.

On Wednesday, the European Commission raised its growth forecast for Spain to 5.9% in 2021 and 6.8% in 2022, citing the projected impact of EU recovery funds, especially next year.

Arce said the central bank’s updated macroeconomic forecast in June would be more comparable to the Commission’s view, but would not elaborate further.

“It is possible that, as this delay (in EU aid) occurs to some extent, we will implement less European funds in 2021, and possibly more in 2022, and this may be reflected in slightly less momentum this year and more in 2022,” he said.

Such a delay may not necessarily be a bad thing if the funds were accompanied by a more thorough selection process of investment projects, Arce added.

Bank of Spain Governor Pablo Hernandez de Cos said that, while the Spanish economy would get a boost from EU funds, the consequences of the pandemic on the labour market and fiscal accounts would be felt for years.

The Spanish government has recently cut its growth forecast for 2021 to 6.5% to reflect an anaemic first quarter and delays in the arrival of EU funds, though expected the economy to expand by 7% in 2022.