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HomeLatest NewsThe largest European rating agency warns: political paralysis will weigh down investment

The largest European rating agency warns: political paralysis will weigh down investment

Date: May 23, 2024 Time: 09:20:27

The political paralysis that has arisen from the general elections of July 23 and the resulting delay in the formation of a new Government threaten to slow down the process of disbursing European funds and hinder new investment projects, affected or growth. . economic and the necessary process of fiscal consolidation. The warning is made by the largest European rating agency, Scope Ratings, in a report that highlights how productive investment has stagnated since 2020, leaving Spain lagging behind the rest of its Southern European neighbors and especially compared to Italy and Portugal.

The firm fears that this stagnation in investment could limit “long-term growth prospects” for Spain and also point to this problem as one of the reasons why the labor market shows a “mediocre” performance. The unemployment rate, which the last Active Population Survey stood at 11.6% in the second half of the year, practically doubled that recorded on average in the Eurozone (6.4% at the end of June, according to Eurostat) and was placed well above the 7.5% in Italy or the 6.3% in Portugal and even the 11% in Greece.

As a result of the international financial crisis, Spanish companies and households began a long deleveraging process that put a brake on investment, but also allowed for a clean-up of private finances that has become visible in the improvement of the financial balance. . on current account and in Spain’s net international investment position. In fact, in a single decade the first went from a deficit of recurring registrars to presenting a surplus of 0.5% of GDP last year; While the second has improved from around 85% of GDP in 2007 to 61% in the last year. Thus Spain has become “less dependent on foreign capital,” the agency says.

The effects of rising rates on investment

(ECB) represents a new brake on private sector investment, by increasing borrowing costs. “Businesses’ reluctance to invest is mirrored by households, who are mindful of the economic impact of the pandemic, the rising cost of living and possibly growing anxiety about retirement income as people age.” Spanish population”, they point out from Scope.

For all of the above, the public investment and liquidity that the Next Generation will provide are of crucial importance although they will not be able to completely replace private investment in terms of job creation and boosting long-term growth, point out experts from the German firm. Spain has so far received 37,000 million euros of the 164,000 that correspond to it in recovery funds between grants and loans. Scope believes that there is much work ahead to implement the investment strategy and that a broad political consensus will likely be a crucial component of this.

A prolonged political blockade would slow down the evolution of funds

Given that neither the acting President of the Government, Pedro Sánchez, nor the leader of the opposition, Alberto Núñez Feijóo, have a clear chance of forming a parliamentary majority, there is a risk that the political blockade will prolong and slow down the deployment of the European funds and the fiscal and economic reform that the country needs. “If this led to slower growth than expected, it would complicate the Government’s efforts to improve public finances,” adds the rating agency’s report.

They also consider that the increase in social and health spending will put fiscal consolidation to the test, so they project a deficit of 4.4% of GDP this year and 3.2% next year. This would imply a slower reduction than anticipated by the Government which, given the announcement from Brussels that it will recover the fiscal rules in 2024, had committed to placing the hole in public accounts at 3% next year in January to comply . thus with the path marked by the Stability Pact. If the GDP does not disappoint, Scope calculates that the Spanish debt-to-GDP ratio could be reduced to 108% at the end of next year, in line with the forecasts for France (112%), Belgium (108%) and Portugal (103%). ). %), but below Italy (141%).

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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