The Spanish economy will undoubtedly slow down in 2023, although no risk of recession or contraction is envisaged for the time being. The forecasts for Spain are more upbeat than those of the main European economies due to Spain’s specialized production and comparative non-reliance on the Russian and Ukrainian economies, plus the implementation of certain measures, such as the Iberian exception. This is one of the main findings of the Esade Economic and Financial Report (first six months of 2023), produced with support from Banco Sabadell and directed by Toni Roldán, director of EsadeEcPol. According to the chapter on the economic scenario, by Esade professor Josep M. Comajuncosa and Manuel Hidalgo, professor at Pablo de Olavide University and senior fellow at EsadeEcPol, the 1% growth forecast for the Spanish economy will depend on the evolution of energy prices and inflation and the ensuing decisions taken by the European Central Bank. The performance of the job market will also be decisive, in which respect the authors warn that potential employment levels may already have been reached, a situation that might hinder reductions in unemployment in the coming months.

The impact of fiscal policy in 2023, an election year, will also be crucial. According to the authors of the report, the overexposure to fiscal stimuli in recent months (such as Next Generation EU funds, and increases in pensions and minimum wages) could bring down the deflation that began at the end of last year. These measures and others such as the reduction in VAT, will significantly impact public finances by limiting the reduction in the public deficit and sending today’s very high levels of public borrowing even higher. In this respect, they believe it is essential for Next Generation EU funds to be used to make profound structural reforms aimed at improving productivity and the output of human capital.

In terms of sectors, the construction industry can expect a year of significant opportunities thanks to the investment driven by Next Generation EU funds, whereas forecasts for the service sector, whilst still relatively optimistic, are more uncertain because of the close links between consumer spending and the evolution of prices, financial costs and the job market. The uncertainty regarding industry, however, will be high because of geopolitical friction and changes to regulations, particularly those related to the environment and industrial autonomy.

The inflation dilemma facing banks

The Economic and Financial Report reveals that 2023 will be characterized by poor economic growth around the world due to higher inflation and also tougher financial conditions caused by the contractionary monetary policies of central banks. The authors do, in fact, warn that whether economies merely slow down or suddenly grind to an extended halt will depend on the ability of central banks to achieve neutral interest rates.
 
The authors of the Esade report forecast a global growth rate of some 2.9% for 2023, with a more pronounced downturn in developed economies, expected to grow around 1.2%. The world’s three leading economies will decelerate significantly: 1.4% growth in the USA; 0.7% in the Euro zone — albeit with considerable variations between Member States; and 1.8% in Japan. Moderation is also anticipated in Latin America, with Argentina, Chile, Peru and Colombia experiencing growth of around 2% to 3%, and Mexico and Brazil, around 1%, whilst Chile enters a recession with -1% growth. As for Asia, moderate growth of 5.2% is expected in China, 6.1% in India, and 5% in Indonesia, Malaysia and the Philippines.

The main risk affecting the fulfilment of these economic forecasts is the evolution of the war in Ukraine which could cause the prices of food and energy commodities to rise again. The growth of some countries might also be hampered by new waves of the Covid-19 pandemic, mistakes by central banks about higher interest rates, or more widespread difficulties for financing public debt in developing economies. These risks, should they happen, could cause the economy to slow down even more and push inflation higher.

In this edition of the Esade Economic and Financial Report, Javier Solana and Ángel Saz-Carranza, President and Director of EsadeGeo respectively, analyze the impact of the invasion of Ukraine and the rivalry between the US and China in the global economy in the article “Geopolitics and globalization: 2023”. Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, addresses the global crisis regarding natural gas and oil supplies, and other short- and medium-term energy challenges in the chapter “The geopolitics of the energy transition: towards a clean, safe future”; while Mij Raman, Europe MD of the Eurasia Group and senior research fellow at the LSE European Institute, reflects on the political landscape of Europe in “Political risks in Europe: the outlook for 2023”. Yue Jie, senior research fellow on China in the Asia-Pacific program at Chatham House writes about the relationship between China and the world in “Power, mindset and money: the difficult balancing act between China’s domestic challenges and its global ambition”; and Calin Arcalean, professor of Economics at Esade, ends the discussion section of the report with “Global value chains: the links that keep us apart.”