Further, the invasion is having a negative impact on the global supply chains for certain productive processes, with signs of a worsening of bottlenecks, after the partial improvement in the fourth quarter of 2021, although the lockdowns in China to check the pandemic may also have contributed to this. In any event, the latest indicators of export orders point to a slowdown in trade flows. Amid so much uncertainty, preparing macroeconomic projections is even more complicated than usual. The Banco de España’s latest forecasts,1 published on 5 April, confirm that the gradual recovery in activity has been blown off course by the invasion of Ukraine: GDP growth has been revised down and inflation up, compared with the previous projection exercise in December 2021. These projections were prepared on the basis of still-incomplete information for the first quarter of the current year. According to the data available, the recovery in activity continued in the period leading up to the war. This is reflected, for example, in the information on social security registrations, despite the effects of the spread of the Omicron variant of COVID-19, probably due to the beneficial effects of the high rate of vaccination. However, the same social security registrations data also show that employment growth had already begun to falter in March and early April, following the invasion of Ukraine. Through the above-mentioned channels, the war has led the output growth projections for 2022 and 2023 to be revised downwards by 0.9 pp (to 4.5%) and 1 pp (to 2.9%), respectively.
In this regard, the Banco de España’s latest projections point to a substantial downgrade in GDP growth in 2022 and 2023, while the rate of inflation is expected to rise sharply this year. Second, economic policies have a pivotal role to play in this scenario. On the one hand, European economic policies and domestic fiscal policies must respond decisively, providing targeted support to the most vulnerable households, businesses and sectors affected, and offering certainty. It is important to ensure that such action is indeed selective and temporary in the case of the fiscal policy of a country like Spain, whose room for budgetary manoeuvre, already very limited before COVID-19, has been significantly further eroded as a result of the pandemic. Meanwhile, amid sharply rising inflation, the ECB has taken gradual steps towards normalising its monetary policy, already leading to a slight tightening of financial conditions. Looking ahead, monetary policy decisions will depend on the new data and, given the significant degree of uncertainty, flexibility, gradualism and optionality will be maintained. We are clearly committed to adopting all such measures as may be necessary to ensure price stability and safeguard financial stability. Lastly, amid the current upsurge in the price of energy and certain other commodities, it is vital to guard against the emergence of second-round inflation effects, particularly in the form of a wage-price spiral. In the short term, preventing this feedback loop is neither easy nor, above all, agreeable.