Inflation slows in Spain, but also growth in the third quarter

The inflation in Spain moderated for the third consecutive month in a world context of rising prices, but the Gross Domestic Product did not escape a slowdown, a prelude, according to some forecasts, of a technical recession that the government rules out.

Inflation fell in October in Spain to stand at 7.3% year-on-year, thanks to the drop in energy prices, according to a first estimate published this Friday by the National Institute of Statistics (INE).

Simultaneously, the Spanish economy grew by 0.2% in the third quarter of the year, also according to the INE, a clear decrease compared to the 1.5% growth achieved in the second quarter.

Inflation for the third quarter is 1.6 points lower than the level of the month of September (8.9%) and 3.5 points lower than that registered in July (10.8%), which was a record that had not been reached for almost 38 years , according to the Spanish public body.

The slowdown in October “is mainly due to the drop in electricity prices”, which had risen sharply just a year ago, as well as those of gas, the INE underlines in a statement.

The harmonized consumer price index (IPCA), which allows comparisons with other countries in the euro zone, was also established at 7.3%, which is 1.7 points below the level of September (9%).

Core inflation – which does not take into account some prices such as energy prices and which is corrected for seasonal variations – remained on its stable side, at 6.2 percent.

The government of the socialist Pedro Sánchez has multiplied aid plans in recent months to try to contain inflation.

In particular, Spain, together with Portugal, obtained authorization from the European Union to leave the European energy tariff system and put a cap on the price of electricity, separating it from the price of gas.

Government rules out recession

The growth of the Gross Domestic Product (GDP) of 0.2% is slightly higher than the forecast of the Bank of Spain, which expected 0.1 percent.

The slowdown, expected by all economic organizations, is explained by the poor results in the real estate sector, where activity contracted by 2.5%, and in construction, where it fell by 0.1 percent.

The conflict that began with the Russian invasion in February causes “very significant distortions of a diverse nature (on energy markets, international trade, price trends, migratory flows, etc.) that have been in effect since March of this year” explained the INE.

“The Spanish economy, in this context of extraordinary uncertainty in which it carries out its activity, is growing and continues to create jobs,” Pedro Sánchez said on Thursday.

The Spanish economy is much better prepared than it was years ago to be able to face all these turbulences derived from the war,” he added.

However, the country, like all its neighbors, is expected to have a difficult winter on the economic front.

The public accounts control body Airef forecasts a contraction of the Spanish gross domestic product in the last quarter of 2022 and the first of 2023, which would place Spain in a technical recession.

“The economic indicators do not point to this situation” of technical recession, ruled out the Minister of Economy, Nadia Calviño, in an interview on Telecinco.

According to Madrid, Spanish GDP should increase by 4.4% this year, due to the momentum accumulated in recent quarters. However, growth should fall to 2.1% next year, instead of the 3.5% initially forecast.

This forecast is considered optimistic by most economic organizations.

Spain, which saw its GDP fall by 10.8% in 2020, due to the impact of health restrictions on its economy, which is heavily oriented towards tourism, should not return to its pre-crisis level before the first quarter of 2024, according to the IMF.