Asked three or four times about the risk of recession, Angel Gavilan, CEO of the Bank of Spain in economics and statistics, could not deny this when submitting the institute’s macroeconomic forecast update to the press last June 10. In any case, he noted that this threat is less for our country than for the rest of the major economies in the eurozone.
This Wednesday, a group of economists at Bank of America Citi warned that the probability that the world economy would be in recession “is close to 50% as central banks tighten monetary policy and weaken demand for goods and services.” “This is a real risk,” admitted Sergi Lanau, deputy chief economist at the International Finance Institute (IIF, acronym in English), for the same reasons. However, this expert also shares the opinion that Spain is one of the countries that can avoid this.
“If rising rates are to be significant, they could lead to a new economic downturn: job creation and the economy will slow down, and we’re not even sure that this will help curb inflation. In any case, it would be to kill flies with batons. “, Complained a few days ago on Twitter and in exactly the same sense, Nacho Alvarez, Secretary of State for Social Rights and head of economics at Podemos.
“Delivery shocks [principalmente en la energía por la invasión rusa de Ucrania] “Inflation continues to rise and fall, while central banks are now raising interest rates and weakening consumer demand for goods and services,” warn Citi economists led by Nathan Sheets. This team believes that if such a recession occurs, it will happen. Be weak, ”when unemployment rises by a few percentage points and output declines for several consecutive quarters. [la condición que define una recesión técnica según la teoría económica]”.
“It is still possible to avoid it, but it requires mitigation of supply shocks [también los cuellos de botella en el comercio mundial por las restricciones sanitarias en China] And that the demand is against it, “they conclude. In both respects Spain has a definite advantage over the eurozone ‘s major economies.
First, our country has little direct impact on the deterioration of trade relations with Russia, because before the war it was very small, especially, for example, with Germany. Secondly, the recovery in demand in Spain has been delayed due to the weight of tourism, which meets the first summer after 2020 without major restrictions and should be accelerated, despite rising prices, while the rest of the activity shows the same trend relative. Deadlines.
Thus, our country is a leader in the economic growth forecasts of the European Commission, and both the executive of the society and the Bank of Spain control inflation in 2023. With these predictions, the institute, headed by Pablo Hernandez de Coss, maintains the belief that Spain will recover in advance. -Pandemic activity in the second half of 2023, according to the government and against the most pessimistic scenario of the Organization for Economic Cooperation and Development (OECD), with a much more sustainable inflation outlook.
Much of the optimism about the OECD is based, on the one hand, on the arrival of foreign tourists and the recovery of spending by these visitors. On the other hand, in investments, which contributes to the recovery plan. It also predicts that the barrier to world trade “will be resolved in 2023.” Finally, this private consumption, the most delayed factor in post-pandemic reconstruction, is accelerating thanks to accumulated savings and “labor market dynamism.”
Therefore, a full recovery in household spending is key for Spain, and rising borrowing, mortgages and financing in general are threatening it, as the European Central Bank (ECB) has recently acknowledged, and has begun a process of tightening monetary policy to curb inflation.
That same Wednesday, the institution’s vice president, Luis de Guindos, acknowledged that rising interest rates and rising prices would lead to lower disposable income for households and, at the same time, greater problems in debt relief. For this reason, he urged banks to increase reserves as delinquency “increases”.
There are many experts who deny that raising interest rates serves to reduce prices when the escalation is caused by energy. “It’s incomprehensible. How do you handle the 50 base point increase? [algunos miembros del BCE han pedido este medio punto de incremento de golpe ya en julio, tras los 0,25 ya comprometidos en junio] The geopolitical problem of the Ukrainian conflict? How do you manage to get oil down? ”Says economist Stuart Medina Miltimore.
Nacho Alvarez, who has the same doubts, has a reason why it would make sense to raise interest rates. “The Fed is doing just that. Higher returns on U.S. debt securities will attract capital from the EU. To buy US bonds, you will have to go to the foreign exchange market and exchange euros for dollars. The euro will depreciate. And because we pay for imported energy in dollars, the devalued euro will make energy purchases more expensive and the inflation shock could worsen. In any case, I do not think that this reason reimburses significant risks, “- explains the economist.
“In the short run, the combination of high inflation (which destroys the real incomes of households and companies) and rising interest rates could mean that agents in more vulnerable situations may have greater difficulty paying their taxes. Debts (and as a result, their level of spending is limited) “, adds the Bank of Spain.
Program execution speed ᲨThe next generation [el Plan de Recuperación] It is also a source of additional uncertainty in the coming quarters. In this regard, the scarce information suggests the possibility of some delays in the implementation of expenditures in relation to the forecasted calendar, “- the institution continues.
This Tuesday, Christina Herrero, president of the Independent Fiscal Responsibility Authority (Airef), sharply criticized the government’s information model on the progress of the recovery plan. In addition, there is uncertainty about the effective implementation of program-related projects ᲨThe next generation “It may lead to delays in some private investment decisions, as evidenced by the qualitative information obtained by the Bank of Spain from telephone contacts with a group of non-financial companies in our country,” he concluded.
Source: El Diario
