Spain’s Central Bank Governor Says Growth Forecast Will Be Pared

Spain’s economic growth forecast for the year will be cut slightly due to worsening conditions in the first part of the year, Bank of Spain Governor Pablo Hernandez de Cos told El Mundo newspaper in an interview published over the weekend.

The first quarter has been worse than expected in the Eurozone as lockdown measures during a third wave of coronavirus infections hurt output, he said. The European Central Bank doesn’t rule out a contraction this quarter.

“We expect a more intense recovery from the second half,” De Cos said. “But the exact moment and its intensity will depend largely on fast vaccine distribution.”

While uncertainty remains extraordinarily high, the ECB expects Spain to be back to 2019 growth levels in 2023, compared to 2022 for the euro zone.

The ECB ramped up its government bond-buying program because tougher financing conditions could have threatened the region’s economic recovery, De Cos said.

Policy makers kept the overall size of the 1.85 trillion-euro ($2.2 trillion) pandemic bond-buying program unchanged, but announced on Thursday that purchases will happen “at a significantly higher pace” from now on.

“We had to calibrate the execution of the program in face of what we were observing in financial markets,” De Cos said.

The ECB’s decision was announced following a jump in global government bond yields driven partly by the speedy U.S. economic recovery from the pandemic. That increase has boosted inflation expectations and become a risk to the euro zone, where those yields are used as a reference for the cost of bank loans to companies and households.

Inflation expectations over the medium term are far from the ECB’s target and below its forecast before the crisis, De Cos said. By accelerating government debt purchases, the ECB expects it will be able to guarantee favorable financing conditions.

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