A slower than expected recovery

BarcelonaIn Spain the economy fell more than in other European countries and now the recovery is also slower. This is the Bank of Spain's crude diagnosis of the economic situation after revising the GDP growth prediction for this year from the 6.3% forecast in September to 4.5%. The conclusion is that the expected rebound that was to take the Spanish and Catalan economy back to pre-pandemic levels in just a year or year and a half will become a more staggered recovery that will be extended in time until at least 2023. The reason for the slowdown is a combination of factors. On the one hand, the evolution of the pandemic itself, which has had unforeseen waves that forced the closure of the hospitality industry. On the other, purely economic factors such as the increase in energy prices, which will not subside until spring and, related to this, problems in the supply chain. In fact, all this has affected consumer confidence, with consumers spending less than originally estimated, and is one of the reasons for the slowdown in growth.

All this paints a very volatile picture in which it is difficult to make forecasts, but the Bank of Spain maintains a certain optimism for 2022, for which it calculates growth of 5.4% (four tenths less than in September) and a bonanza that will extend through 2023 and 2024 due to the impact of European funds. If these forecasts are fulfilled, it would be good news for the governments of Pedro Sánchez and Pere Aragonès, whose future is at stake in the field of management and how it affects citizens' lives.

Nevertheless, there are other factors that will have to be closely monitored in the coming months. In particular, the impact that the withdrawal of stimuli and rate hikes announced by the Federal Reserve and the Bank of England may have. On the other hand, the ECB is also betting on a gradual withdrawal of stimuli, albeit maintaining a low interest rate policy. The current growth is partly based on the strong public investment applied as shock therapy against the pandemic in both Europe and the United States, a policy that in turn is causing heavy indebtedness of the states. In Spain, public debt already exceeds 120% of GDP; just a few years ago, it would have been unthinkable that northern European countries would have accepted such a figure.

On the other hand, the Bank of Spain acknowledges that other indicators such as employment and tax collection are performing better than GDP. In the first case, the number of employed has already exceeded the number that existed before the pandemic, despite the fact that temporary employment continues to be very high. This is precisely one of the challenges of the labour reform that is being negotiated with trade unions and businesses, and which must serve to close the gap between permanent and temporary workers. This and other reforms are the condition that Europe has set for opening the tap of European funds that are currently the great hope for the Catalan and Spanish economies. They are the only hope unless structural reforms are carried out that allow us to gain competitiveness in ways other than low salaries.