Collapse of Confidence, by Joan Tapia

The consumer confidence index (CCI), produced monthly by the CIS, is an economic indicator and confirms the state of mind of citizens. It ranges between 0 (minimum confidence, which is never reached) and 200 (maximum point, also impossible to reach). And the CCI for June, known this Monday, has shown a sharp drop in confidence.

In June 2021 the index was at 97.5, there was still no positive perception, but there was some hope that things would improve. Now the situation has gotten much worse as the index has fallen by 32.5%, to 65.8, compared to a year ago. pessimism rules and the most serious thing is that while the current situation subindex has fallen ‘only’ 21%, the one that measures future expectations has plummeted a spectacular 39.4%. In one year it has fallen from 119.1, a “comfort” zone of cautious optimism, to 72.4, which indicates great pessimism.

Why this crash? There are general causes. We have gone from the belief that the pandemic would be defeated and everything would return to normal to being immersed in a hot war on European territory that confronts, not directly, the West with Russia, the second nuclear power in the world. Y the prospects are of a long war which is going to affect both growth (all forecasts are revised downwards) and a shot in the inflation which is forcing central banks to change their monetary policy. To go from being benefactors, who inject money into the economy, to nervous watchdogs of inflation.

In America it has become clear: between sustaining activity or fighting the rise in prices, the economy will slow down. Of course, it will be ensured (without guarantees) that the landing is not traumatic. And in Spain things are more complicated. The memory of the 2008 crisis is very much alive and although employment has recovered, inflation has jumped in one year from 2% to 8.7%.

Also, the government has sold an excess of optimism about the future that has ended up crashing with supermarket prices. Unemployment affects the unemployed and the general climate, but rising prices disrupt family economies directly and daily. And the opposition, on the contrary, has sinned -even when things looked better- of catastrophic. The consequence is that consumers, confused and disoriented, have lost kilos of confidence.

More in the Government because it is the one that has failed in forecasting inflation (even if it is global) and the one that has, if not all the controls of the economy, yes the responsibility. And this helps to understand what has happened in Andalusia. Also that Sánchez has reacted with a package of economic measures of 9,000 million (to be added to the 6,000 of the previous plan) that wants to contain inflation and mitigate the situation of those most affected.

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The plan will have to be analyzed in detail, but it is difficult for confidence to recover because the Government does not even have an assured majority to approve it. The previous plan was a hair’s breadth and the important labor reform law only went ahead because a PP deputy made the wrong vote for him.

With the war in Ukraine without a short-term solution, inflation skyrocketing, a divided government without a majority, and a deadlock in relations between the two major parties, it is normal for citizens to be discouraged. Will the economic measures be approved and effective? Will it break lack of communication between government and opposition? The crisis is global, but only then can confidence improve. A little.

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