It is against this background that the measures adopted to soften the economic and social consequences of the war must be assessed. The National Plan to respond to the economic and social fallout of the war in Ukraine, approved by the Spanish Cabinet on 29 March,5 includes measures that will come at a direct cost of € billion in 2022, according to Government estimates.67 One area of fiscal policy where more resolute action would be desirable is the formulation of a credible commitment to budgetary stability over the medium term. This would help limit the risks of financial market tensions that could be fuelled by the current climate of high uncertainty. This commitment should take the form of a gradual fiscal consolidation programme, to be implemented once the recovery takes hold. A gradual adjustment process minimises the possibility of any abrupt changes in the budgetary policy stance that might hamper the recovery under way. Increasing the economy’s potential output would also help reduce the high level of government debt. This would require reforms that address the economy’s structural shortcomings. NGEU funds could also be particularly useful in implementing these reforms and the investments required to support the changes. 5  See Real Decreto-ley 6/2022 (available in Spanish only). 6  In addition to this amount, there is a contingent liability of € billion linked to the new ICO guarantee facility approved as part of the raft of measures to support business liquidity needs stemming from the temporary increase in energy and fuel costs.
The measures included in this plan would have a positive impact of 0.2 pp on the average GDP growth rate. 3  situation, use of the Next Generation EU (NGEU) funds and financing conditions that, while somewhat tighter than in previous quarters, remain favourable. Turning to the inflation forecasts, in step with the paths of the corresponding futures markets, the upward pressures of the energy component are expected to peak in the second quarter of 2022 and then decelerate. The inflation projections rest on two assumptions: (i) that, in line with the information from the EBAE, the pass-through of higher intermediate costs to final prices will only be relatively moderate (albeit more forceful than envisaged in the December projection exercise); and (ii) that the second-round effects will be limited, i.e. scant feedback effects between inflationary pressures on prices and wages. Inflationary pressures will be partly alleviated by the measures contained in the National Plan to respond to the economic and social consequences of the war in Ukraine.4 Furthermore, these projections do not yet include the possible changes in prices on the electricity market that are currently being negotiated in the European Union. Against this backdrop, the projections see inflation standing at 7.5% in 2022. It will then fall in 2023 to around 2%, thanks, above all, to the moderation of the energy component. Underlying inflation will not start to decline until end-2022, once the upward pressures on firms’ costs associated with energy prices and bottlenecks have corrected.