Economy Minister Nadia Calvino. | JUAN CARLOS HIDALGO

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Spain's government slashed its economic growth outlook for this year to 4.3% from 7% today after reporting a sharp slowdown in the first quarter due to the negative impact of soaring energy prices prompted by Russia's invasion of Ukraine.

The long-expected downgrade brings the government's projection closer in line with those of international organisations and reflects concerns that the fallout from the war will cut short a global rebound from the COVID-19 pandemic.

"The unjustified aggression against Ukraine is having major economic and social effects that are affecting all European countries," Economy Minister Nadia Calvino told reporters.

A solid recovery in international tourism will not be sufficient to offset the weight of soaring energy prices and poorer growth prospects for Spain's main export markets, she added.

After a historic 10.8% slump in 2020, Spain's economy rebounded 5% in 2021 but the expansion slowed sharply toward the end of the year as supply chain issues and high inflation began to bite.

The war in Ukraine exacerbated those issues during the first quarter and weighed on Spanish household spending, bringing down overall growth to a weaker-than-expected 0.3% from the previous quarter, when the economy expanded 2.2%.

A similar trend played out across the euro zone, which eked out average quarterly growth of just 0.2%.
Nevertheless, Calvino said she expected inflation to decelerate further after it softened to 8.4% in April from a near 40-year-high of 9.8% in March.

Despite the weaker growth forecast, the government hopes to reduce this year's budget deficit to 5% of gross domestic product (GDP), from 6.9% in 2021, thanks to higher tax collection, Budget Minister Maria Jesus Montero said.

On an annual basis Spain's output expanded 6.4%, roughly in line with expectations, as the economy rebounded from the previous year when Spain was buffeted by a huge snowstorm that paralysed the centre of the country for a few days in January.