Nothing is what it seems

  • At this rate, we will not return to pre-pandemic GDP until the end of 2022

When we all anticipated a vigorous recovery after the collapse caused by the covid, the INE data points, for the second consecutive quarter, to a slowdown that puts us back in the European queue positions. In other words, we are growing, but the accumulated so far this year places us at a scant 2.5%, very far from all the forecasts for the year as a whole, including that of the Government. At this rate, we will not return to pre-pandemic GDP until the end of 2022, having lost three more years the existing deviation between returning to 2019 and what we would have advanced in that time, had the pandemic not been crossed.

The most striking thing is that the main cause of the difference between what was expected and what was achieved lies in what (almost) everyone agreed on: anti-Covid policies, plus those to support family and self-employed income, they were creating an important mass of “embalmed savings” that would explode as soon as the restrictions were abandoned thanks to vaccination. Well no. Spanish families have shown a very prudent behavior in terms of consumer spending (remember that consumption represents around 60% of GDP), even with two negative quarters so far this year. On the contrary, exports are holding up very well, despite the growth in Unit labor costs which, in theory, should deteriorate our foreign competitiveness.

A posteriori, we can find three explanations for the brake on consumption that we are experiencing. The first, the existing uncertainties regarding the evolution of the pandemic, with rebounding and very slow progress in global vaccination, together with some exaggerated alarmisms regarding the country’s situation (“we are heading for bankruptcy (& mldr;) they will have to rescue us “) push the vector of prudence in families that have seen their savings grow during these months.

The second, that the income support policy has increased the indebtedness of some families, mostly self-employed, increasing the risk of what the Bank of Spain calls “latent impairments” when the time comes to return them. The third explanation may lie in the negative impact of inflation on the real income of families and the value of their savings, affecting, again, their expectations. As the OECD has just made public, real family income per capita has therefore fallen this quarter throughout the area.

During these weeks, in addition to the previous point, another issue has brought economists upside down: the employment figures. It turns out that, despite the aforementioned slowdown in the recovery, employment in Spain is skyrocketing to historic levels. Thus, the EPA tells us that employed persons have already exceeded 20 million, a figure that is not only higher than in 2019, before the covid, but also returns us to the maximum that existed in 2007, before the financial crisis, although with an unemployment rate that today is almost double that of then. These data indicate that, for the first time in our history, employment would be growing faster than GDP (without repealing the labor reform of the PP) which, additionally, would mean an important (and worrying) drop in the productivity of our economy.

That is, a mess that our best heads are trying to explain. Some, also seeing the positive evolution of other variables such as tax collection, continue to think that the INE will end up revising our GDP for 2021 upwards. Hopefully it will do so in the next quarter and not in two years.

Deciding whether the appreciable rise in prices indicated by the CPI is, or not, inflation, also consumes a lot of energy for our analysts and decision-makers, due to its great relevance: if it is inflation (generalized and persistent rise in prices), instead of a temporary rebound of some costs, such as energy, then the Central Banks would have to end their lax monetary policies and, by making credit more expensive, try to put an end to it even if it meant plunging the world economy into an induced recession. Our latest CPI presents such a large difference between the general index (5.5%) and the so-called underlying or more structural index (1.4%) that we have to go back to the end of the 70s of the last century to see something similar, that would support the idea that we are experiencing a specific rise in some prices.

The ECB’s chief economist has said, along these lines, that this price hike is “very unusual and temporary” and it is explained by the bottlenecks that have appeared in key supplies, together with the increase in the costs of maritime transport (each container costs ten times more than before and the waiting time has doubled). If there is no wage indexation (second-round inflation), the CPI may decrease over the next few months and, thus, we will continue to maintain the generous liquidity support that central banks are providing in this pandemic without, by the way, having triggered the inflation, the textbooks said would occur.

There are people who have anticipatory anxiety and are already worried about what will happen the day after. The health crisis has triggered deficits and public debts to never-before-seen figures and, at some point, adjustment policies will have to be put in place since the simple evolution of the cycle will not be enough to bring them back to acceptable levels compatible with the discipline. of the euro, only temporarily suspended. In our case, the great cyclical impact of the public deficit is known, which makes credible the evolution predicted by the Government from 11% in 2020 to 4% in 2023, the year from which it is thought that the control plans in the euro area.

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Two problems associated with this issue: calculate the amount of the structural deficit, immune to recovery, as a consequence of the permanent measures implemented in this period (Minimum Vital Income, for example) and that some place around 5% of GDP and, on the other hand , the need to reduce the public debt that requires having primary surpluses in the Budget. Both objectives, to reduce the structural deficit and the debt in absolute terms, will undoubtedly require adjustment measures via higher income or / and lower expenditures. In due course, that is, in the next legislature and according to the European debate on the announced revision of the stability criteria.

Meanwhile, everyone trembling over another important and unforeseen issue: the aforementioned supply crisis that acts as a real supply shock and whose negative impact on the recovery is assumed. And all this regardless of what is agreed at COP26 in Glasgow, if something is agreed and if later, the governments manage to comply with it. What has been said: confused times, in which nothing is what it seems.

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