Oblivious to the political scuffles and early elections, the Spanish economy is aiming for a second quarter of acceleration, thanks to the resilience of the labor market and the drive of the foreign sector, including tourism, which offers good prospects ahead of the arrival of a summer year that can return it to precovid figures. Social Security contributors exceeded 20.8 million in May for the first time in history, and unemployment has fallen in all sectors and in all autonomous regions to its lowest level since 2008. The deficit and debt continue to decline -albeit gently- and inflation has moderated to 3.2% in the last month, a level not seen for almost two years. Not all are positive data, since households continue to lose purchasing power and consumption remains in a weak environment of rising interest rates.
All in all, the outlook at the gates of the general elections on July 23 has clearly improved in relation to what was expected at the beginning of this year. “Overall, it is a macro situation that can endure,” Daniel Fuentes, director of Kreab Research, told this newspaper, who believes that the worst of the crisis is behind us. With the data available up to June 2, the MIPred model of the Independent Authority for Fiscal Responsibility, which includes the evolution of GDP in real time, estimates that the economy will grow by 1% in the second quarter compared to the first, which It would happen that it stepped on the accelerator again (at the beginning of the year it grew by 0.5%). In addition, it foresees that the advance of the activity will be 2.3% if compared with the same period of a year ago. The agency has more than half of the indicators for the month of April and about 29% of those for May, so his vision is still limited.
However, the improvement in prospects that AIReF points to also corresponds to what the Bank of Spain (BdE) has been able to test. The entity will publish its Quarterly Report on the 19th, which includes an update of the macroeconomic projections, and its general director of Economy and Statistics, Ángel Gavilán, already pointed out a few days ago that the figures for the whole of the fiscal year were better. For the time being, the BdE expects to once again raise its growth estimate for this year until it is close to 2% “or above” -in line with the 2.1% estimated by the Government in its latest macroeconomic table- and place the rate of closer to inflation of 3% than the 3.7% that was contemplated in March.
The interest rate ceiling is close
It also coincides with the fact that the second quarter will see an advance at least similar to the first, Miguel Cardoso. The Chief Economist for Spain at BBVA Research explained to ‘La Información’ that this represents a significant improvement over the scenario that most analysts handled a few months ago, since they expected a contraction in activity at the beginning of this year. Inflation falls, not only because of the reduction in the price of fuel and food, but also because industrial goods are beginning to show significant moderation. In his opinion, this should set the limit to how far interest rates can rise, as long as the wage agreements in the rest of the Eurozone are similar to those being signed in Spain and do not put additional pressure on the costs of the companies or suppose an additional deterioration in the purchasing power of wages.
At the moment, and as CaixaBank Research emphasizes to this newspaper, employment, far from putting the brakes on, has stepped on the accelerator in the early stages of 2023 and the foreign sector has shown remarkable strength, driven to a large extent by tourism. The practical normalization -although not complete- of the price of natural gas has also been confirmed, which has benefited activity. Thus, they already see “close to the ceiling of the reference interest rates”. They also warn that high inflation and high rates are leaving clear traces in their wake. Private consumption has had two consecutive quarters of declines, and the rise in prices is having an impact on the household savings rate. Investment is also accusing the increase in the cost of credit and has shown signs of weakness since the spring of 2022. “So the improvement of the scenario is not free of obstacles,” he adds in the entity.
Thank you, the private sector is even facing this environment of uncertainty without major imbalances, with debt levels around or below the European average, having seriously improved the structure of outstanding credit, reducing the risk derived from changes in interest rates interest and having increased savings. This is essential for Miguel Cardoso. Also that there are no sectors where excess investment processes are observed. “The challenges in the medium term are found to be a high imbalance in public accounts, high indebtedness of the Public Administrations, excessive unemployment rate and low growth of productivity and real wages”, he points out.
The effects of the electoral advance
The imminence of the general elections makes it unlikely that the economy will be negatively affected by the greater uncertainty, Cardoso points out. The medium-term effects came from the speed of forming a government and the ambition of the measures that can be taken to speed up budgetary processes or to advance in far-reaching reforms to face the challenges encountered above. Daniel Fuentes also points out that the July 23 elections will not affect the economic situation, which has its own dynamics, although he does appreciate two possible derivatives of this situation.
Consider that the elections can affect the confidence indicators if the results lead to an executive with the participation of Vox – Spain would become, together with Italy, the second largest economy in the euro with a government that included the extreme right. In that case, Fuentes maintains, it would be necessary to see how Brussels, the markets and investors would react. In addition, there is a certain degree of uncertainty around the economic policy project of the two major parties, especially that of the PP, since “continuity” is assumed for the PSOE. Neither the economic profiles of the main opposition party nor the orientation of its program on issues such as the energy transition are known yet.
