Unicaja Banco has published the first issue of the report ‘Previsiones Económicas de Extremadura’ (Economic Forecasts for Extremadura), which will be published every six months and prepared by Analistas Económicos de Andalucía, research company of Grupo Unicaja Banco. As indicated in the report, according to the estimations of Extremadura Quarterly Accounts of the Instituto de Estadística de Extremadura (IEEX), in 2021 the region’s Gross Domestic Product (GDP) grew by 4.2% (5.1% in Spain). According to the data published by the Labor Force Survey, employment grew by 4.2% on average in the year, with the unemployment rate standing at 18.9% in the last quarter of 2021.
In 2022, the estimations made by the research company of Grupo Unicaja Banco indicate that the GDP could grow by 3.4% in the year. With regard to employment, an increase of 1.3% is expected, with the unemployment rate standing at 18.8% in the year average.
This report is divided into four sections: 1) Economic environment; 2) Recent evolution of Extremadura economy; 3) Economic outlook for Extremadura 2022 and 4) Provincial analysis. The first section describes the international and national backdrop and its recent evolution. The second section analyses the situation of the Extremadura economy, with special focus on the evolution of the main indicators, according to the region’s productive structure. The third section includes forecasts on the evolution of the GDP and employment in the region for 2022. Finally, the last section focuses on the analysis of the evolution and economic outlook of Extremadura provinces.
Global and national economic environment
The international context has changed dramatically with the Russian invasion of Ukraine on 24 February. At the end of last year, the economy was expected to regain momentum as supply conditions continued to normalize and inflationary pressures moderated. However, the invasion will have a significant impact on the economy, which will depend largely on the evolution of the conflict and the impact of economic sanctions.
In a first assessment of this possible impact, the OECD estimates that global economic growth in 2022 will be around 1 percentage point (p.p.) lower as a result of the conflict, with a greater drop in the Euro Zone, while inflation, which was already high at the beginning of the year, could be at least 2.5 p.p. higher. The International Monetary Fund forecasts a global economic growth of 3.6% in 2022 and 2023, i.e., 0.8 and 0.2 p.p. lower, respectively, than in last January forecasts.
The impact of the war will be uneven across countries, and the Spanish economy could be less exposed than others, as it is less dependent on Russian gas and oil. However, the sharp increase in the prices of raw materials and the reduced availability of some of them will affect the different sectors of activity, in addition to the impact of inflation on demand and the effect on exports and tourism of the lower dynamism of our neighboring countries.
The latest data from the Quarterly National Accounts, corresponding to the fourth quarter of 2021, indicate that the Spanish GDP grew by 2.2% (0.3% in the Euro zone), with a year-on-year increase of 5.5% (4.7% in the Eurozone). In the whole 2021, the Spanish economy would have registered a growth of 5.1% (5.3% in the Euro Zone). As for the first quarter of 2022, the Quarterly National Accounts advance estimate indicates that the GDP has registered a quarter-on-quarter increase of 0.3% (0.2% in the Euro Zone), with a decrease in household consumption expenditure. On a year-on-year basis, the GDP increased by 6.4%, with a generalized growth among demand components.
Recent evolution of Extremadura economy
According to the latest data of the Extremadura Quarterly Accounts of the IEEX, in the fourth quarter of 2021, the GDP grew by 0.7% in quarter-on-quarter terms, 0.5 p.p. less than in the previous quarter. In year-on-year terms, the GDP growth was 4.3% (5.5% in Spain), although output would be 0.5% lower than in the fourth quarter of 2019 (-3.8% in Spain). As for the first quarter of 2022, the estimates of AIReF (Independent Authority for Fiscal Responsibility) point to a quarterly GDP increase of 0.4% (0.3% in Spain), registering a year-on-year rate of 4.2% (6.4% in Spain).
From the side of demand, private consumption would have shown a certain slowdown in the final stretch of 2021, affected by the increase in COVID-19 infections and the upturn in prices. Retail sales would have decreased in the second half of the year in year-on-year terms, falling by around 1% in 2021 as a whole (3.2% in Spain). Business investment improved last year, especially in the first half of the year, as shown by industrial production of capital goods and registrations of cargo vehicles. Likewise, the intense growth of home sales and purchases, with the highest figures since 2010, would point to a good performance of residential investment, which has been maintained in the first two months of 2022.
Regarding foreign demand, the value of exports of goods from Extremadura grew at a significant pace in 2021, increasing by 9.4% compared to 2020 (20.1% in Spain) and registering the highest value in the historical series (started in 1995). The growth of exports was generalized in all sectors, with the exception of capital goods and other goods. The sectors of food, beverages and tobacco and semimanufactures account for 78.0% of the value of Extremadura exports.
From the supply side, the quarterly increase in production in the fourth quarter of 2021 responds mainly to the increase in services (1.2%) and, to a lesser extent, construction (0.9%) and the primary sector (0.2%), while the industrial sector would have decreased by 2.0%. In year-on-year terms, regional GDP growth would have been 4.3%, with increases in all sectors, most notably in services (5.5%).
In 2021 as a whole, GDP growth in Extremadura would have been 4.2% in real terms (5.1% in Spain), after a decline of around 7.5% in 2020. By sector, growth would have been generalized, standing at close to 5% in industry and around 4% in services and agriculture, while construction would have recorded an increase of 1.7%.
Regarding the labor market, employment showed a significant growth rate throughout 2021, attending both the Labor Force Survey figures and contributions to the Social Security, recovering the pre-pandemic levels. In the case of workers under the Social Security scheme, in December (403,671 workers) there were around 9,860 more workers than in the same month of 2019, which meant a growth of around 3% in year-on-year terms (lower than the national average), which would have been maintained during the first months 2022 (4.9% in April), although it should be remembered that at the beginning of 2021 the third wave of the pandemic was being recorded.
According to the Labor Force Survey, in the fourth quarter of 2021, the number of employed persons in Extremadura grew by 2.7% in year-on-year terms (4.3% in Spain). Data for the first quarter of 2022 show a slight increase in employment compared to the end of 2021, due to the higher number of employees in non-market services. In year-on-year terms, there has been a growth of 6.5% (4.6% in Spain), also highlighting the increase in non-market services. Likewise, the number of unemployed has decreased by 12.7%, with an increase in the active population, which has placed the unemployment rate at 19.0% (13.6% in Spain).
Economic Outlook for Extremadura in 2022
The forecasts of Analistas Económicos de Andalucía, research company of Grupo Unicaja Banco, indicate that in 2022, the regional GDP could grow by 3.4%. However, there is a high uncertainty, especially with regard to the evolution of the conflict in Ukraine, but also in relation to the trajectory of prices or bottlenecks in supply chains, not to mention the evolution of the pandemic, so that making projections at this time involves a high degree of complexity.
It is also estimated that, on average for 2022, the number of employed persons according to the Labor Force Survey could grow by 1.3%, due mainly to the increase in employment in services. The number of unemployed could fall by 3.5%, which would bring the unemployment rate to 18.8% on average for the year (some 4.7 p.p. above the national average).
In a detailed analysis by provinces, in the fourth quarter of 2021 there would have been an increase in activity of 4.5% in Badajoz and 3.9% in Caceres, according to estimates of the Synthetic Indicator of Economic Activity of Analistas Económicos de Andalucía. In 2021 as a whole, Badajoz would have recorded a growth of 4.5% and Caceres, of 3.8%.
As for 2022, the forecasts of Analistas Económicos de Andalucía indicate that the economic growth would stand at 3.6% in Badajoz and 3.2% in Caceres.