Banco de España Lowers GDP Growth Forecast Amidst Trade War Concerns
The Spanish central bank cuts growth expectations, indicating potential economic risks stemming from international trade tensions.
The Banco de España (BdE) has lowered its projected Gross Domestic Product (GDP) growth for 2023 to 2.4%, a reduction of three-tenths from its previous quarterly report issued three months ago.
Governor José Luis Escrivá announced these updated forecasts during a presentation to the Economic Commission of Congress, although the official report is scheduled for release on Tuesday, June 10. The forecast for 2026 has also been adjusted downward by one-tenth to 1.8%.
Escrivá indicated that although the Spanish economy has limited direct exposure to trade with the United States, the indirect impact of the ongoing trade war could be significant.
He cited the chemical sector as an example, where direct sales to the U.S. account for only 2% of total exports, but indirect exposure through supply chains may magnify this to around 10%.
Escrivá emphasized the potential vulnerability despite the central scenario suggesting minimal immediate impact from the trade tensions.
The Banco de España has developed an alternative scenario assuming a further escalation of the trade war, including the possibility of a 20% tariff on Europe coupled with equivalent retaliatory measures, prolonged economic uncertainty, and episodes of market volatility.
Under this scenario, GDP growth could slow by an additional 0.4 percentage points in 2025, reaching 2%, and drop by 0.7 percentage points in 2026, down to 1.1%.
In both scenarios, domestic demand is expected to act as a buffer against global economic turbulence, although growth rates would decline markedly.
Inflation forecasts remain under control, despite inflationary pressures stemming from the trade war.
The BdE revised its inflation expectations for 2023 down by one-tenth to 2.4%, maintained the forecast for 2026 at 1.7%, and anticipated an increase to 2.5% for 2027 due to newly introduced CO2 emission rights.
Escrivá also highlighted concerns regarding Spain's high public debt, projecting that the public debt ratio will stabilize above 100% throughout the projection period, necessitating further adjustments for a turnaround.
As per Escrivá, only four European countries have a higher debt ratio than Spain.
Addressing questions from political parties regarding the resignation of Ángel Gavilán, the Director General of Economics, Escrivá stated that Gavilán had concluded a cycle of work and expressed a desire for 'new horizons'.
Although he remarked that Gavilán's resignation was unrelated to the annual report, he acknowledged appreciation for Gavilán’s contributions.
Escrivá announced that the selection process for Gavilán's successor would involve a panel of three distinguished economists to ensure adherence to international best practices in the appointment.
Governor José Luis Escrivá announced these updated forecasts during a presentation to the Economic Commission of Congress, although the official report is scheduled for release on Tuesday, June 10. The forecast for 2026 has also been adjusted downward by one-tenth to 1.8%.
Escrivá indicated that although the Spanish economy has limited direct exposure to trade with the United States, the indirect impact of the ongoing trade war could be significant.
He cited the chemical sector as an example, where direct sales to the U.S. account for only 2% of total exports, but indirect exposure through supply chains may magnify this to around 10%.
Escrivá emphasized the potential vulnerability despite the central scenario suggesting minimal immediate impact from the trade tensions.
The Banco de España has developed an alternative scenario assuming a further escalation of the trade war, including the possibility of a 20% tariff on Europe coupled with equivalent retaliatory measures, prolonged economic uncertainty, and episodes of market volatility.
Under this scenario, GDP growth could slow by an additional 0.4 percentage points in 2025, reaching 2%, and drop by 0.7 percentage points in 2026, down to 1.1%.
In both scenarios, domestic demand is expected to act as a buffer against global economic turbulence, although growth rates would decline markedly.
Inflation forecasts remain under control, despite inflationary pressures stemming from the trade war.
The BdE revised its inflation expectations for 2023 down by one-tenth to 2.4%, maintained the forecast for 2026 at 1.7%, and anticipated an increase to 2.5% for 2027 due to newly introduced CO2 emission rights.
Escrivá also highlighted concerns regarding Spain's high public debt, projecting that the public debt ratio will stabilize above 100% throughout the projection period, necessitating further adjustments for a turnaround.
As per Escrivá, only four European countries have a higher debt ratio than Spain.
Addressing questions from political parties regarding the resignation of Ángel Gavilán, the Director General of Economics, Escrivá stated that Gavilán had concluded a cycle of work and expressed a desire for 'new horizons'.
Although he remarked that Gavilán's resignation was unrelated to the annual report, he acknowledged appreciation for Gavilán’s contributions.
Escrivá announced that the selection process for Gavilán's successor would involve a panel of three distinguished economists to ensure adherence to international best practices in the appointment.
Translation:
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