The absent apocalypse: why did Spain manage to avoid recession?

The absent apocalypse: why did Spain manage to avoid recession?

“As much as it bothers some, the apocalypse has not come and will not come,” Prime Minister Pedro Sánchez said last week. The consensus was clear a few months ago: Spain would suffer a recession in the last quarter of 2022 and the first quarter of 2023, with declines of a few tenths. Although close to zero, employment data remains positive, so does consumption data and the CPI is the lowest in the European Union at 5.7% according to INE. There was no calamity or economic catastrophe and thanks to GDP growth of 0.1% in the third quarter of 2022, there does not seem to be a recession either, why?

The economists responsible for the forecasts that predicted a bad development of the economy assure that the scenarios considered overestimated the negative impact of the crises, which could have been mitigated better than expected. However, Bank of Spain, Airef, BBVA Research, Funcas, and more recently Goldman Sachs and Deutsche Bank, among others, have shifted from constructing their scenarios based on possible collapses to looking at the eurozone in general and Spain in particular. You will avoid the recession.

What was expected did not happen. This is what Miguel Cardoso, chief economist at BBVA Research believes: “It is not so much which indicators have changed, but the impact that those expected in the first half of 2022 will have. We didn’t see that the invasion reduced consumption. We didn’t see the impact on industry from the impact of energy, but at the same time we saw that people’s confidence to go out and hit the streets was much greater than we expected.”

There were unexpected surprises, for example in unemployment. Until not too long ago, it was common for unemployment to spike when the economy slowed. However, according to Funcas economist Maria Jesús Fernández, unemployment is “decoupled from GDP”. GDP growth slowed from 2% in the second quarter of 2022 to 0.1% in the third quarter of the same year. Although GDP slowed, employment maintained its good pace and Spain led eurozone job creation in the third quarter. This fact is unusual and “complicates forecasts” for economists, says Fernández.

But it’s not just a job. The economy as a whole is resisting, as the director of Spanish economy at CaixaBank, Oriol Aspachs, pointed out: “In 2023 we expect the execution of European funds to gain momentum. Added to this is the recovery of tourism, the fall in energy prices, although it will be necessary to see if they consolidate. We are in a moment where the various factors that are pressuring the scenario are having their impact, but we rule out a deep recession.”

from black to white

Forecasts have gone from black to white for two reasons. First off, the difference between growing and not growing was generally minimal. It was expected that in the event of a recession, the economic contraction data would be very close to zero. On the other hand, economists need certain certainties for accurate forecasts. In the current context, where even nuclear bombing by Russia has been hinted at, certainty is conspicuous by its absence. María Jesús Valdemoro, IESE lecturer, emphasizes this: “We don’t know what will happen to the war in Ukraine. We do not know what will happen with the tightening of monetary policy, we do not know what will happen with Ukraine restrictions in China. All of this will also be present in 2023″.

The 2008 financial crisis is still with us. It’s another factor that economists highlight to explain the general mood of the population, a kind of pessimism based on past economic experiences. The Director of International Projects at the Valencian Institute for Economic Research (Ivie), Matilde Mas, believes it: “The context went better because we all rowed in the same direction. The mistakes of 2008 were not made Measures taken are appropriate, with exceptions such as general fuel subsidies. Eliminating the deficit and debt problem, the policies are well designed and we should have confidence in ourselves. Even if we are not used to it.”

The context went better because we were all rowing in the same direction. The mistakes of 2008 were not made.

The habit of misfortune could distort perception. “There was a divergence between the perceptions of businesses, families and those of us who do economic forecasting. Because we know from previous experience that what we are experiencing has had a negative impact on the economy, but what we are seeing is that the economy is much more resilient to rising energy prices. Even the worst forecasts, such as a NATO war with Russia, have not come true,” says the BBVA economist.

Has the worst happened?

When there are two consecutive quarters of declines in GDP, a country technically enters a recession. It doesn’t matter if the contraction is -0.1% or -10%. Had there been a contraction, all the experts consulted stressed that it would have been brief and moderate. According to Aspasch, the current scenario is one of “moderately positive growth rates”, which could bypass the period marked black in the 2023 calendar.

But the economy is far from at its best. “We’re talking about growth, but it’s going to be little, and they don’t have to make us believe things are already good,” says Valdemoro. “In the first half of the year we will see inflation stabilize due to the supply chain crisis. But bringing inflation down from 10% to 5%, which has been associated with the troubles of the pandemic, has been relatively easy. For the rest of the year, bringing the current level of inflation down to what we’re comfortable with, around 2%, is another matter,” he concludes.

At least that is to be expected, says the economist. But the pandemic, the invasion of Ukraine and inflation have made it clear that we are subject to the unpredictable.

Where should the focus be in 2023?

The absent apocalypse: why did Spain manage to avoid recession?

(Interventions ordered left to right and top to bottom)

Mathilde Mas. Director of International Projects at Ivie.

Measure the impact of inflation well.

“The most dangerous thing is to make mistakes when it comes to inflation. Mainly because there is a campaign of contractionary monetary policy in the various central banks. The big risk is making inflation forecasts that are harsher than they actually are. The ECB affects all countries and inflation rates vary greatly there, Spain being among the lowest. The toughest stance of ECB leaders worries me because if you make a mistake and overdo it, you can do a lot of damage. That would be the big risk. “

Miguel Cardoso. Chief Economist for Spain at BBVA Research.

real and nominal wages.

“The development of real wages will be decisive for the future. How the nominal salary increases and how inflation develops. It will be very important to see how the persistently high core inflation develops and whether we move into a persistently high inflation environment in the coming years. Even if you will be able to be compensated to some extent by wages. What we will see is a constant loss of family purchasing power, what we can see is a drop in consumption.”

Mary Jesus Valdemoro. IESE lecturer.

monetary and fiscal policy.

“We need to look at how the rate hike will affect government debt. We have a very high level of debt. The tightening of interest rates will reduce the maneuverability of all administrations. Governments will have to pay more interest, and fiscal rules will come into force in 2024, which will force us to make efforts to address the structural deficit. We need to think about both monetary and fiscal policy and what will happen with real wages recovering.”

Oriol Aspachs. Director of Spanish Economy at Caixabank.

The development of energy prices.

“Energy prices are the ones that increase and stop the pressure on the prices of other products. If the observed de-escalation is confirmed, that is very good news. Other factors were released by this shock, such as B. Indirect effects of the second round that need to be followed up. Although its evolution is uncertain, we must be aware of how the conflict will continue, the reopening of China after the pandemic or the development of investments to build regasification plants in Europe.”

Maria Jesus Fernandez. Senior Economist at Funcas Economics.

The length of employment and the ERTE.

“On the plus side, we have the intrinsic strength that employment has shown so far. Here, too, ERTE can be very helpful: companies that are severely affected by the increase in energy costs can, at least temporarily, fall back on ERTES instead of shedding staff. This resistance is very important to sustain consumer confidence and spending. Furthermore, this strength in employment tells us something about a strength in the economy.”


The latest report from CaixaBank Research estimates that Spain will grow by 1% in 2023 and 1.9% in 2024. Regarding the CPI, the credit institution indicates that the year will end at 4.6%.

euro zone.

European economic drag has prompted Goldman Sachs and Deutsche Bank to adjust their economic forecasts for the region. The US entity believes that the euro zone will emerge from the recession with a 0.6% increase in GDP this year. Goldman’s forecasts give the euro zone, which has also been marked by the threat of recession in recent months, a breather. Deutsche Bank also believes that, taking into account the latest business climate data, it is suggesting that there “will not even be a recession” in the euro zone this winter. One of the factors changing his view is the sharp fall in gas prices, which will further eliminate the risk premium. The reopening of China will also have a positive impact on Europe.


UK GDP growth slowed to 0.1% in November, dodging a contraction. A similar thing happened in Germany, where GDP grew by 1.9% in 2022 and has already exceeded pre-pandemic levels. Before the conflict, Germany was one of the countries most dependent on Russian gas supplies.