There was a time when organisms made their forecasts discounting further interest rate hikes to fight inflation. Uncertainty about the price spiral conditioned the estimates, which began to improve as the energy crisis subsided. 2023 was going to be better than expected, the recessionary drums were no longer making noise and doubts were shifting to 2024, when we will have to face a new winter without Russian supply. That time is what is reflected in the upward revisions to growth for Spain that have been taking place since the beginning of the year. But the economy is going so fast that all omens can become obsolete if the financial turmoil ends up infecting productive activity.
The bankruptcy of the Californian bank SVB threatens to change everything. In its latest report, published this Friday, the Organization for Economic Cooperation and Development (OECD) warned of the impact of interest rate increase in the financial sector, “including some regional banks in the United States.” However, that generic reference does not mean that the Paris-based body would have taken into account the largest bankruptcy of an entity since the Great Recession to make their calculations: they were already written. Neither the European Central Bank (ECB), which published its forecasts this week. The regulator has left the door open to modulate its monetary policy if necessary to tackle the crisis, which would have effects on the future of the economy. Cabals proliferate, but the only certainty is the positive undercurrent expressed by all the experts. This is what awaits us for the next two years… as long as the black swan becomes ugly duckling.
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The dreaded recession is already a discarded scenario by the main institutions and houses of analysis. Not only in Spain, where it was no more than an ephemeral autumn prophecy, but throughout the continent. The same eurozone for which at the turn of the summer a 2023 was forecast practically flat, with at least a couple of negative quarters, will grow around one point this year. The mild winter temperatures, together with effective savings and provisioning policies and reduced Chinese demand due to the zero covid policy, have kept the price of gas at bay. As a result, industrial production holds up and, with it, the positive dynamics. Beyond some occasional dip in the most exposed countries, the economy of the single currency will rebound double than the ECB anticipated just three months ago. Even Germany, says the OECD, will grow by 0.3%; in his previous forecasts, issued in November, he estimated an equivalent contraction.
In that context, the fastest growing economy right nowthe Spanish company, “continues to hold up better than expected” —in the words of the BBVA study center— and pick up the pace, with a rebound that will be between three and five tenths during the first quarter. “The main factor that explains the better evolution of GDP is the capacity of the European economy to avoid scenarios of restrictions in the use of energy and the decrease in the cost of generating it”, add the bank’s experts. Although our country depends less on Russian gas than its other European counterparts, it is very sensitive to the rise in energy prices in international markets.
It is true that all organisms continue to show a more prudent photo than that of the Government, which designed the 2023 budgets with a growth scenario of 2.1% so far far removed from the rest. But the image produced by BBVA Research, the OECD or the European Commission itself, the last to review their predictions, it looks more and more like that of the Executive. Upside estimates accumulate thanks to a consumption that holds better than expected and the recovery of the labor market, which is taking its breath after a discreet end to 2022: it closed the best February since the middle of the last decade. The call effect carry over, which carries over to this year the positive impact of the upward revision that the National Statistics Institute (INE) made of the previous one, also helps. Here Javier Jorrín explains it.
Javier Jorrin
The acid test will come this week, when the second reading of fourth quarter national accounts and the Bank of Spain will launch its new forecasts. Meanwhile, all clues are favorable. The BBVA research institute, which was the first to speak of a recession at the beginning of the course, is already predicting growth of 1.6% for this year, four tenths more than in December. In October it gave 1%, eight tenths less than in summer. This oscillation is just one example of the OR that trace the estimates of the main organisms in the last months. The pessimism that autumn brought, where a range of between 0.5% and 1% was handled, it has been corrected until we returned to the same place we were in the summer: a growth of more than 1.5%.
It is not little, but it must be taken into account that Spain is the only country among the big ones in the euro that pre-pandemic GDP has not yet recovered. After the latest review of the INE, it is only 9 tenths away from matching the levels of the fourth quarter of 2019. It is possible that it will achieve it towards the summer, when the slowdown of recent months dissipates and the economy returns to cruising speed.
However, all the good news that is expected for this 2023 become uncertainty for 2024. No one has pointed this out better than the OECD, which speaks of a “fragile recovery” of the world economy that can derail at any time. The club of the richest countries in the world translates this message into its growth estimate for Spain: while reviewing four tenths higher than this year, keeps intact the next one. Our country will grow the same in the two years of the biennium, which shows that recovery flattensinstead of in crescendo that everyone projected a few months ago. BBVA is more optimistic (2.6%), but takes a bite of eight tenths. It is not the only one: in December the Bank of Spain also did it.
Inflation stalls, GDP dries up
The argument underlying this caution for 2024 is the rise in interest rates. Until this week, the European Central Bank he stood in a very determined position to continue the increases in the price of money until inflation reaches the 2% targets. As is known, this causes a slowdown in economic activity. And therein lies the vicious circle that puts a spoke in the wheel for next year: prices, experts predict, will continue to be high and, therefore, the restrictive monetary policies that prevent an acceleration of the rebound. “The persistence of inflation and the expectation of higher interest rates worsen the growth scenario for the following year,” concludes the BBVA think tank.
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Marcos Motto Graphics: Data Unit
It is true that the OECD improves forecast for consumer price index (CPI) for 2023 and 2024, as well in Spain as in the eurozone, but it is only a mirage. Core inflation, which is what really worries central banks, not only will it continue to be above the general index, but it will reach the highest levels in our country among the big ones in the euro: 5% this year —two tenths more than in the previous estimate— and 3.7% next year. Energy can now become cheaper, since what began as an imported phenomenon has penetrated to the bones of the national economy. To remove moisture, there is nothing like the ECB drain. The problem is that, if not done carefully, growth can remain drier than the SVB balance.
There was a time when organisms made their forecasts discounting further interest rate hikes to fight inflation. Uncertainty about the price spiral conditioned the estimates, which began to improve as the energy crisis subsided. 2023 was going to be better than expected, the recessionary drums were no longer making noise and doubts were shifting to 2024, when we will have to face a new winter without Russian supply. That time is what is reflected in the upward revisions to growth for Spain that have been taking place since the beginning of the year. But the economy is going so fast that all omens can become obsolete if the financial turmoil ends up infecting productive activity.
