The news devours everything at such a speed that those who remain before public opinion based on generating news have to speed up the rate of news broadcasting, knowing that what happened yesterday is already history and what happened the day before yesterday is forgotten. For the rest, there is the option of analyzing things in more depth seeing where the direction of the channel goes, instead of living intensely the various bends in the road.
For example, the Update of the Stability Program 2022-2025 that the Government has recently approved and sent to Brussels and that is the closest thing to a prospective exercise that is done in Spain, with the risks that this entails. Let’s analyze its main aspects, beyond the specific figures in permanent review due to the circumstances:
growth model
Changing the production model of the Spanish economy to go from one intensive in low-skilled labor (construction, commerce and tourism) to another with greater added value, has been an idea repeated ad nauseam by many of those who are in government today or support it from outside. In principle, it could be thought that the Next Generation Funds were going in that direction: converting our productive sectors into a green and digital line that would allow them to improve their added value, confirming what some of us said that there was no dilemma between fewer bricks and more bricks. computers, but you had to get more bricks with a computer.
This debate has ended up fading away, being replaced by the analysis of the new model, or pattern of growth, based on three very significant developments: employment is now growing even more than GDP; investment, public and private, is a vector that drives the recovery and we maintain a current account surplus. Changes in behavior with respect to the traditional evolution of our economy and that the PP government has already asserted, attributing it to its labor reform and its program to stimulate the internationalization of companies.
In any case, it still strikes me that it is expected to go from a GDP growth rate of 5.1% in 2021, to another of just 1.8% in 2025 and no explanation is offered for such a sharp drop that the Government shares with the rest of the international organizations. A matter to follow.
Beyond GDP
One of the most promising innovations that the Government has introduced in its data, following a mandate from Brussels, is the preparation and publication of indicators that are complementary to GDP and that try to better reflect the country’s level of well-being, which affects citizens, but it is not clearly reflected in a summary indicator such as GDP.
Economists have long pointed out the limited usefulness of GDP and the need to consider other indicators of well-being. To this end, indicators are developed on four other cross-cutting issues of great importance: ecological transition; digital transition; gender equality and social cohesion, with a clear message: a specific measure can make GDP grow a lot, but not be preferred because it does so in exchange for greatly deteriorating some of those other social elements that also affect well-being.
Introducing, in economics, the debate on values and social alternatives, is a very positive step forward that is going too unnoticed. There is life, beyond GDP.
The miracle of the public deficit
That the forecast GDP growth be revised downwards over the next four years, as a consequence of Putin’s war in Ukraine, and, however, the same public deficit reduction scenario be maintained as before, until it reaches 2 .9% of GDP in 2025 is, without a doubt, the most controversial point of the Program Update. But it has its explanation.
But first, it is worth pointing out some interesting facts. For example, that this reduction is supposed to be cyclical (there are no cuts); that spending (6.3 points of GDP) is reduced more than income (2.4 pp); that there is hardly any reduction in the structural deficit of 3.5%, the same as before the pandemic; that the weight of social contributions on GDP falls a few tenths, despite the increase in employment and that three quarters of the public deficit will be attributable to pensions, in the absence of reform.
The miracle must be sought, then, as in what we have been this year, in inflation as a tax. That is, in the increase in tax revenues produced by inflation, which makes us suppose that there is no provision to deflate the rate, something that was once mandatory by law in this type of situation.
Public debt and catastrophists
Entering the pandemic with a public debt equivalent to 95.5% of GDP and leaving, two years later having raised it to 118.4%, can be considered normal, if we take into account the reduction still experienced by GDP and, above all, everything, the 90,000 million euros that the whole of the Spanish administrations had to inject into the economy as a result of the health measures to fight the virus. On the contrary, planning to reduce it to only 109.7% of GDP in 2025 may indicate little additional effort. And this fact has already launched all the prophets of catastrophe announcing crazy risk premiums, threats of bankruptcy as a country and a harsh European bailout. Anyway.
The announced rise in interest is already having an effect on the cost of public debt which, in weeks, has gone from being at negative rates (the Treasury earned money by borrowing) to being in the positive zone. Above all, ten-year bonds that are above 2%. In other words, the new ten-year bonds that the Treasury takes out will cost more money.
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But, only the new bonds and only 10 years. However, the Treasury also borrows for two and five years, or with bills for less than one year, all of which are much cheaper products. Therefore, yes, the new public debt will become more expensive, but far from any catastrophism. Except new black swans.
I conclude: I am concerned that, despite expecting the creation of 1.5 million full-time equivalent jobs, we will still end 2025 with a 10% unemployment rate. With very modest improvements in productivity and unit labor costs, contained. We will see how this affects the income distribution.