The world economy faces strong turbulence that have intensified since the beginning of the year. The stock markets have collapsed, prolonging the losses made last year. In just three months, the companies that make up the world index have lost no less than 14% of their value – in the case of the Spanish stock index, the drop is 11% -. Far from easing, nervousness is increasingly palpable in the markets.
What is at stake with this weakening of investment is the sustainability of the expansionist cycle and the possible outbreak of a new crisis. Of the 30 recessions recorded in the last three decades, all but one were preceded by a strong investment adjustment. Another advanced indicator of future recessions (the inversion of the interest rate curve, which is observed in 22 of the 30 recessions) points in the same direction. Generally, the time that elapses between the inflection of these indicators and the end of the expansive cycle is 12 to 18 months.
It is therefore appropriate to clarify the origin of the deterioration of the external environment and its significance for the Spanish economy. First, the correction reflects the confluence of multiple factors, Some reversible and others more difficult solution. Among the first, is the commercial conflict between the US and China, which is affecting international trade and causing a landing of the Asian economy more abrupt than expected. The announcement, at the close of this edition, of a meeting between the negotiators of both parties would have eased the tension in the markets. On the other hand, the prospect of a Brexit without agreement is less and less unlikely, although the outcome is in the hands of governments.
But nevertheless, the turbulence also reflects persistent factors, whose solution is more complex. The end of the era of monetary expansion led by central banks is one of them. The companies and the most indebted states will have it more complicated to find financing at affordable prices. The collapse of emerging economies such as Argentina and Turkey sounds like a first warning.
The fragile situation of the Italian economy, which could have gone into recession, is another stumbling block. The impact on trans-Alpine banking, full of doubtful loans, and cascading effects on corporate financing and the worsening of the recession are worrying. In addition, the advances in the reform of the euro are too timid to protect the European economy from both external and internal disagreements.
Without a doubt, the deterioration of the external context will weigh on Spanish exports. The cheapening of oil, one of the few good news, will bring some oxygen to consumption, but without compensating the slowdown in world markets. On the other hand, the foundations of the expansion are maintained: debtors and competitive companies; intense employment growth as certified by the December membership data; healthy bank balance sheets. Therefore, everything points to the fact that the Spanish economy will maintain the pattern of a mild deceleration. However, special attention must be paid to investment in capital goods – an advanced indicator of the evolution of the cycle – which continues to grow strongly today. In addition, high external indebtedness is the main vulnerability flank in the current context of global weakening. Therefore, it is crucial to maintain a solid external surplus.
In short, the financial expansion that had sustained the global economy is running out, which announces strong convulsions and cuts in the outlook for global growth this year. The Spanish economy, although better positioned than some of its surroundings, will not emerge unscathed. The impact will depend on our ability to shore up the foundations of the expansion and create fiscal room for maneuver at the end of the announced cycle.
Raymond Torres He is the director of Conjuncture of Funcas. On Twitter, @RaymondTorres_
In 2018, Social Security enrollment increased at an annual rate of 3.1%, compared with 3.6% in 2017, equivalent to an increase of 565,000 new members. With this, the number of affiliates reached 18.8 million in annual average, still lower than the maximum in 2007 (19.2 million). In December, membership increased above the average increase in that month since the start of the recovery. Eliminating seasonality, it is equivalent to a monthly increase of 57,000 (Funcas figures), higher than the average monthly growth of membership throughout the year.