Annual Report 2023

Abstract

Recent macroeconomic developmentsDespite the restrictive stance of monetary policy and the high level of geopolitical uncertainty, in 2023 the world economy grew more than expected. This resilience, which varied across geographical areas, was partly underpinned by strong employment in most economies and, in some regions, fiscal policy support.Mention should also be made of disinflation, which was mainly driven by the fall in energy commodity prices, the fading of the supply shocks observed in recent years and monetary policy tightening. Against this background, central banks in emerging economies started to ease their restrictive monetary policy stance, while their counterparts in the main advanced economies paused their interest rate hiking cycles. However, euro area economic activity was observably weak, with the German economy notably sluggish and even contracting slightly. Inflation slowed more than expected and has fallen by 8.2 percentage points (pp) since October 2022 (2.8 pp since March 2023 in the case of core inflation), as the monetary policy of the European Central Bank (ECB) -which set the deposit facility rate at 4% in September -continued to be transmitted forcefully to financing conditions. Amid monetary tightening, weak euro area growth and high uncertainty, the Spanish economy stood out as it recorded growth (2.5%) significantly above the euro area average (0.4%) and initial expectations. As a result, at end-2023 GDP was around 3% higher than its pre-pandemic level. However, GDP per capita in Spain had only risen by 0.3% since end-2019 (against a background of high immigration flows over the last two years), in contrast to the euro area where it stood 2% above its pre-pandemic level.GDP growth was mainly driven by buoyancy in household spending (underpinned by strong job creation amid sliding productivity), government consumption and external demand, while business investment proved considerably sluggish. The high growth rates of tourism-related services explained around one-half of growth in 2023.Meanwhile, the private sector has continued to deleverage, with its debt now down 94 pp of GDP from the peak of 2010. In addition, Spain's current account surplus increased and its negative net international investment position decreased by 7 pp, to 52.8% of GDP, 45 pp below the all-time high recorded in 2014. Meanwhile, the budget deficit and government debt as a percentage of GDP also fell, but they nevertheless remain at high levels.11 Annual Report 2023 -Banco de España FOREWORD BY THE GOVERNOR 11The disinflation process, which began in 2022 Q3, continued in 2023, driven mainly by lower energy prices, while food and core inflation slowed more gradually. In addition, the slowdown in unit profits cushioned the impact of the growth of compensation per employee. The outlook for the coming yearsAgainst a backdrop of high geopolitical uncertainty, global economic growth is expected to stabilise at around 3.2% over the coming years, significantly below that observed over the last two decades (3.8%). Some ...