With the return of summer, the obstacles have multiplied: new tensions in the energy markets; bursting of the credit bubble in China; Inflation is stagnating at over 5% in Europe and is recovering in Spain (despite the rise in interest rates), as well as a significant decline in new loans to individuals and companies. However, some lights have also appeared that are supposed to ward off the worst omens.
The indicators immediately point to a bearish direction, especially in the industry most affected by the global turmoil (the August PMI indicator remains in free fall and reaches negative territory). International markets are suffering from a series of shocks, protectionist tensions and the quasi-recession in Asian demand, so we can hardly count on the foreign sector to continue driving growth. Recently, our sales of goods abroad have weakened, although we have gained market share.
Given these unflattering trends, domestic demand could play a stabilizing role. Despite the rise in CPI, households are regaining some purchasing power – a small relief after the hard blow that hit households last year. Collective bargaining salaries are increasing at a rate of more than 3% and by one percentage point more in the contracts signed so far this year, while the CPI remains below this threshold. This is reflected in the confidence factor, based on the improvement in the European Commission’s expectations indicator, which for Spain has less negative values than at the peak of the inflation outbreak.
In addition, the labor market is suffering from the economic slowdown, but is resisting. According to the latest count of social security affiliations, 1,269 jobs were created in the second half of August compared to the previous month, compared to the more than 100,000 new affiliations registered in the spring using the same methodology (with seasonally adjusted data). by the ministry). This pattern is partly due to the phenomenon of anticipation of new hires due to the risk of not finding staff in the middle of the season. In any case, the increase in retail sales indicates a slight recovery in private consumption due to the good development of the labor market.
On the other hand, central bankers appear to be taking into account the risks associated with monetary circulation. Lagarde’s recent comments no longer promise new restrictive doses, preferring to consider a scenario in which high interest rates are maintained for longer than expected. The twist in the narrative suggests a pause in interest rate adjustments after the screw is likely to be turned at the next ECB meeting. This scenario, with greater predictability, is undoubtedly preferable for an economy that needs innovation and investment to move to a more sustainable production model.
However, there are risks, such as a renewed disruption to energy supplies or other natural resources. The announcement of a labor dispute in Australia’s gas sector, the world’s largest exporter of liquefied hydrocarbons, was enough to weigh on markets. The energy component of the European CPI rose 3.2% last month. The prices of foodstuffs, which are most affected by the drought, and the deficits in adaptation policies to climate change also make it difficult to reduce inflation. All of this, as well as increasing margins in the services sector, are in the sights of the central bank.
In short: the international environment is becoming more and more complicated and a recession is currently not in sight. The Spanish economy should enter a period of slower but positive growth and a gradual decline in underlying inflation, although still subdued. This applies when the currency pause occurs. And if there is no new external shock.
The current account balance showed a surplus of 19,000 million euros through June, compared to a slight deficit in the same period last year (-2,000). This improvement is due to the strong increase in net exports of non-tourism goods and services and, to a lesser extent, to the inflow of tourism revenues. The surplus is expected to increase in the third quarter, the one most favored by tourism. All this, together with the dynamics of foreign direct investment, should lead to a significant decline in external debt this year.
Raymond Torres is director of Funcas Coyuntura. On Twitter: @RaymondTorres_
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