Sunday, January 16

The economy that awaits the new Government: the reactivation takes flight but with risks on the horizon | Economy

The First Vice President and Minister of Economic Affairs, Nadia Calviño.
The First Vice President and Minister of Economic Affairs, Nadia Calviño.A. Pérez Meca. POOL / Europa Press / Europa Press

Just a few months ago studying the main economic indicators was like being in front of a painting by Bosco with a hangover: the Great Confinement left a collapse of consumption and investment, thousands of layoffs, company closures, more inequality and a memorial of damages that did not it would fit on a marriage sheet, despite state aid. That started to change in the spring. It was the best of times, it was the worst of times: the incipient spring rebound came with the improvement of the contagion data, but it was seriously overshadowed by a lasagna of risks. Especially sanitary: that when will this end that even today no one is able to answer without hesitation. The Spanish economy has learned to live with doubts and has gained ground in recent weeks. The risks have not materialized, or at least not completely. And the rebound cannot yet be called a recovery – pre-crisis GDP levels are far off – but Spain is gritting its teeth on the way to a vigorous reactivation, with growth rates of around 6% both this year and in 2022, post-war figures after the 11% bang in 2020.

That is, more or less, the economic scenario faced by the government recently remodeled by Pedro Sánchez, with Nadia Calviño reinforced as first vice president with a triple objective: to try to take political advantage of the economic improvement in this second half of the legislature, to take care of the relationship with Brussels on the multimillion-dollar European funds and the difficult associated reforms, and preparing for the Spanish presidency of the EU, scheduled for 2023 – presumably an electoral year – and crucial negotiations for Spain such as the one relating to the reform of the fiscal policy of the euro. Goldman Sachs points out in a recent analysis that things are looking good, but adds that the main risk is “political instability”, that state of permanent tension that is associated with Spanish politics in recent times. Coronavirus uncertainties are also still there, heading into a critical summer to reinforce the rising profile of GDP. If nothing goes wrong, the economy is on track to reach a remarkable cruising speed: it will grow above the aforementioned 6% this year, although the recovery is still asymmetric and incomplete, as it is everywhere; and, hand in hand with vaccination, it will settle definitively in 2022, with forecasts that are also around 6%, according to the numbers of the Government, the European Commission, the IMF and the Bank of Spain.

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“Economic growth stabilizes democracies” and dilutes risks of all kinds, according to the latest essay by political scientist José María Maravall. Statistics are organized mirages, but you still have to ask the data questions. And the answers today are decidedly optimistic — despite the risks. In the country with the highest unemployment rates in the North Atlantic, the key variable is employment, and employment accelerated in May, June and especially in July, with the best unemployment reduction rates in 25 years. The Spanish labor market is the great anomaly of the crisis: this time unemployment has not gone down to 25%, as is usually the case in major shocks. And yet there are a million fewer jobs than before the pandemic: that, together with the rise in inequality and poverty, is for now the deepest economic scar left by the coronavirus.

The mood of the economy is expansive. And, paradoxically, also scary: insecurity, uncertainty, vulnerability and restlessness are still there, they are the bites typical of this fearful time. But the data tell stories, and despite its expressive limitations the statistics show the increasing height of the rebound. Economic, business and consumer sentiment indices are at highs. Exports, employment, business creation, industrial production, service sector activity, mobility, construction, card purchases are on the rise: up to a dozen indicators, including those related to tourism, clearly indicate upwards. After a relapse in the first quarter due to the umpteenth wave of covid and the ravages of Philomena, the reactivation of the GDP was rearmed between April and June, with rates that can come close to 3%, and the normal thing is that the economy takes much more speed throughout the summer to get to grow that 6% per year. “But these times are anything but normal,” warns economist Alicia García Herrero, from Natixis, with the delta variant in mind.

“Every prediction is secretly supported by desire,” says political scientist Manuel Arias. And economic forecasts are no exception: they depend on the virulence of the covid-19 mutations, and in particular the aforementioned delta variant, which is beginning to cause headaches throughout Europe. “The main risk was and is that mutations force a return to certain restrictive measures,” says Carlos Martínez Mongay, former deputy director general of the European Commission. And both positive cases and restrictions are on the rise across the EU – terrible news for tourism – although mortality in the UK (which is several weeks ahead of the impact of this delta variant) is limited to 0, 1%, similar to that of a seasonal flu. The recovery seems unstoppable because despite this rebound there is a state of mind of confidence: animal spirits they are a more cheerful point. And even so, the half dozen experts consulted put a note of contention before the long goodbye of the covid. “It is likely that the economy will have to adapt to operating with restrictions for a long time, and that does not exactly favor Spain. Summer is still key. Tourism weighs 12% of GDP. But Spain fell more due to the weight of services and local commerce, and for the same reason it will grow much more if things do not get ugly, ”explains Ángel Talavera, from Oxford Economics.

For the rebound to finish settling, it is necessary to put the magnifying glass on five factors, according to sources from the Bank of Spain. One: the effectiveness of vaccines against new variants. Two: the implications of the health situation for tourism (the central bank predicts that tourism spending will reach 50% of the pre-crisis level this year, 80% in 2022 and 100% in 2023). Three: the evolution of consumption, with the possibility that the rebound will go even higher if the impounded savings (around 15% of disposable income, a stratospheric figure) seep into the economy, something that is already beginning to happen . Four: the arrival of the 140,000 million European funds, which can contribute almost two points of GDP per year until 2023. And five: it will be necessary to see what the deterioration of the productive fabric is when the State withdraws the aid and it is seen who was swimming naked. “It’s very easy: crutches should not be removed under any circumstances until the economy can run without them. The ERTEs are the best news of this crisis: together with the liquidity lines they have made it possible to soften the impact. But direct aid to companies has not yet arrived and other measures have been applied late and badly. The Ministry of Economy has been excessively timid ”, criticizes Juan Moscoso, from Deusto. “One of the governments more to the left of Europe has applied what is perhaps one of the most orthodox economic policies,” he reproaches.

“Everywhere changes were taking place and people understood that difficult times were coming like a rainy front,” wrote John Lanchester in Capital, one of the novels that best told the Great Recession. That crisis left deep wounds in Spain, and an industrial reconversion in construction. “The Great Confinement will bring deeper transformations in many sectors, and probably a major reconversion in tourism”, predicts Raymond Torres, from Funcas. Two relatively mild years ahead if the virus does not provide additional surprises. The curves will return from 2022: “Then we will see if we have done the reforms properly, and how we have spent European funds. And two key debates will be opened for Spain, on the withdrawal of stimuli from the ECB and on the reform of European fiscal rules ”, Torres closes. One of the worst news that the covid leaves is a public debt around 125% of GDP. Brussels and Frankfurt have acted this time very differently from the austerity cure of 10 years ago, but the return of the hawks (the most orthodox visions in fiscal and monetary policy) is one of the unknowns: the economic health of Italy of Mario Draghi and the Spain of Pedro Sánchez, with that government revamped for the second part of the legislature, depends on how that “rainy front” of which Lanchester speaks is managed so as not to end up, again, like a painting by El Bosco.

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