the OECD warns that it will remain high until 2025



Not even two months have passed since the Organization for Economic Cooperation and Development (OECD) He lowered his economic expectations and this Tuesday he did it again. The deterioration in the purchasing power of households and companies points to an even greater slowdown in activity in 2023, with growth in the Gross Domestic Product (GDP) of barely 1.3%.

The data advanced this Tuesday is below the 1.5% projected in September and much further from the 3.8% expected at the beginning of the year. also strays away from 2.1% projected by the Government in the General State Budget (PGE) of 2023 and that for the moment it maintains despite the fact that all the economic organizations have lowered their perspectives below 2%.

The OECD projects a inflation Although it will reach its maximum point this year, with an average of 8.6%, it will continue to be high during the next two years. Specific, calculates that the annual average will be 4.8% in both 2023 and 2024. These still high rates (the OECD itself speaks of “high” inflation) “will curb the purchasing power of households, although the savings accumulated during the pandemic will support consumption.”

On the business side, “with the deterioration in demand prospects and the increase in financing costs, private investment is expected to remain subdued” on the projection horizon. To this is added “the slowdown in the main trading partners, which will also affect exports“.

For this year, the economic growth forecast is raised by three tenths, up to 4.7%, due to the good performance of GDP in the second quarter. However, the OECD recalls that the economy slowed down in the third quarter, with an increase of 0.2%, consumer confidence fell to “very low” levels, and the unemployment rate rose to 12.7% in the third trimester.

Also, even though it pulled back from a high of 10.7% in July 2022, “inflation is still high standing at 7.3% in October, while core inflation reached 4.8%”; while wages increased by 3.3% between the third quarter of 2021 and the same quarter of 2022.

In this sense, the OECD recalls that although wage increases are moderate for the moment, “an agreement with the social partners to share the burden of rising import prices will mitigate the risk of a wage-price spiral.” The so-called “rent agreement” that for the moment has not been achieved.

Average inflation of 4.8% in 2024

In 2024, as far as the projection horizon extends, the economy will grow by 1.7% but average inflation for the year will remain at 4.8%. In 2021, when the inflationary crisis began, average inflation was 3.1%, according to the National Statistics Institute (INE). In 2020 the variation was negative, with an average fall in prices of 0.3%. And in 2021, the average rate stood at 0.7%in line with previous years of price stability.

This prolongation of inflation will have an effect on the economy. “Growth is expected to slow down in 2023 and remain moderate in 2024, mainly due to the depressing effect of inflation on the purchasing power of households and the weaker prospects for external demand,” the agency explains in its report.

The OECD has warned the Government that tax measures to protect households and businesses of energy prices, adopted after the invasion of Ukraine, “should be reviewed periodically” to ensure that they are aimed at the most vulnerable and are compatible with fiscal and environmental policy objectives.

The public deficit will stand at 4.9% of GDP in 2022, and will decrease to 4.2% of GDP in 2023 and 3.7% in 2024, according to the OECD. In the projection horizon of the Budgets, the Government promises to reduce the deficit to 3.9% in 2023, to 3.3% in 2024 and below 3% in 2025. However, the OECD recalls in its report the commitment of the Government to raise pensions by 8.5%.

Finally, the organization mentions in its report that although the rise in interest rates will weigh on business investment, “Efficient use of Next Generation EU funds will be key to supporting investmentboost productivity in the long term and achieve the green transition”.

Source: Vozpópuli by

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