The report prepared for the third quarter of the year indicates that the Community could recover the level of GDP prior to the crisis by the end of 2023
The BBVA Research Regional Observatory for the third quarter of 2022 translates the scenario proposed for the whole of Spain to the regional level and forecasts lower growth in private consumption in Spain. A circumstance that will affect the communities most dependent on national tourism to a greater extent, for which the report lowers the growth forecast for the Region of Murcia by three tenths in 2022, to 3.8%.
Other communities such as the Valencian Community and Catalonia (-0.1 percentage points), Madrid (-0.2 pp) and Extremadura (-0.6 pp) will also be affected by the drop in domestic consumption. This is due to a somewhat slower than expected recovery in urban tourism and to the execution of Next Generation EU (NGEU) European funds developing more slowly than anticipated.
On the other hand, the BBVA Research report foresees an upward revision of investment in machinery and equipment, as well as exports, both of goods and tourist services. For this reason, in Aragon the expected growth increased by 0.4 percentage points due to the recovery of industrial activity. In Asturias (+0.2 pp), the Basque Country (+0.2 pp) and Navarra (+0.1 pp) there is also a greater export dynamism. In La Rioja it is also revised upwards by 0.3 pp, supported by the industrial sector and the recovery in investment. However, the improvement in the forecasts is not enough for these regions to grow above the whole of Spain in 2022. Likewise, the acceleration of foreign tourism favors growth in the Balearic Islands (+0.3 pp) and the Canary Islands, whose forecasts are maintain and are at the forefront of GDP growth this year.
For its part, in Cantabria, Castilla y León, Galicia, Andalucía and Castilla-La Mancha, the level of growth expected three months ago is maintained. However, the island communities, Madrid and Andalusia will lead the growth this year.
Recovery continues in all communities
BBVA Research forecasts a somewhat greater slowdown in the economy for 2023 than expected three months ago, which is why it lowers growth forecasts across the board. In addition, the report anticipates that the Region of Murcia will grow two tenths below the national average (1.6%), a figure identical to that of La Rioja.
The communities that will grow the most will be the Balearic Islands (3.5%), the Canary Islands (3.%), Madrid (2.6%), Extremadura (2.4%) and Andalusia (2.0%), while on the opposite side Aragon (1.2%), Cantabria, Castilla y León and the Basque Country (1.1%) are located; Asturias, Galicia and Navarra (0.8%).
If these forecasts are fulfilled, the Region of Murcia, Extremadura, Castilla-La Mancha, Andalusia, the Valencian Community and Madrid could recover the level of GDP prior to the crisis at the end of 2023.
Downward revision in 2023
When explaining this downward revision of forecasts for next year, BBVA Research points out that the effects of the war in Ukraine imply a slowdown in European demand for goods and tourism. This will limit the growth of Aragon, Navarra, Galicia and the Basque Country, among the industrial communities. Catalonia, the Valencian Community, the Canary Islands and the Balearic Islands will also be impacted by the slower progress in exports of tourist services. For this reason, the downward revision of growth forecasts is greater in these communities.
In addition, energy prices that will remain very high and its possible scarcity could hinder the recovery of industrial communities, those most dependent on energy consumption in their production and in which natural gas is a relevant energy source. Specifically, in the Region of Murcia, the consumption of natural gas per unit of GDP is triple that of the national whole, while Navarra, Aragón and Asturias practically double it. Likewise, the increase in interest rates and the economic slowdown will increase the financial burden on families and companies, although the impact would be heterogeneous at the regional level.
On the other hand, the acceleration in the management of European funds and in public investment will allow a smaller reduction in the expected growth in Asturias, Castilla y León and Extremadura. For its part, consumption could continue to grow in the services sector, which contributes to growth in the tourist communities and Madrid.
The recovery could continue in 2023, also favored by stored savings, the dynamism of housing construction and the labor reform, which could support the growth in consumption and the improvement in productivity.
Uncertainty factors
The recovery scenario forecast for the coming quarters could be affected by rising inflation, due in part to the high cost of energy. In this sense, core inflation is around 5% year-on-year in Spain and exceeds 6% in the Region of Murcia and Galicia. On the contrary, it is lower in Navarra, Cantabria, Catalonia and Madrid.
Persistent inflation, which drives wage growth and business costs, also poses the risk of a loss of competitiveness, the effects of which could be more relevant for communities with specialization in the production of tradable goods and exposure to foreign markets.
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