May 14, 2021

GDP slows down and the deficit deviates

GDP slows down and the deficit deviates

The Spanish economy loses gas. Meanwhile, as in previous socialist governments, taxes and state spending skyrocket, oblivious to uncertainty. The tail winds continue to blow as before, even stronger, since the eurozone is stabilized, with the forecast of the average price of a barrel of oil around 60 dollars at the end of the year – below 71 dollars 2018- and with the European Central Bank announcing the delay of monetary normalization, which will keep the tap open of low interest rates. However, all indicators point to a slower than expected deceleration. The domestic and global political uncertainty, and the measures adopted by the Government of Sanchez are subtracting tenths from the growth of Spain in each forecast.

The last, the one presented yesterday by BBVA Research, which predicts growth for this year lower than its previous forecast. Specifically, the Spanish economy will advance 2.2%, two tenths less. The evolution of the economy continues to be down in 2020, when growth will fall to 1.9%, one tenth below the forecast by the entity in its previous analysis.

Overall, since the last forecast of growth made by the Government of Rajoy for 2018 (2.7% and that year closed at 2.6%), Sanchez has left three tenths down the road: 3,600 million. Meanwhile, spending -1,300 million is triggered only in so-called «social fridays» – and the deficit will be diverted by 10 billion euros.

Those responsible for the least push are, in this order, the economic and fiscal policies put in place by the Executive, such as the rise in the Minimum Interprofessional Salary to 900 euros, which subtracts three tenths of the creation of employment in the most vulnerable groups, and the global uncertainty about protectionism and the trade war between the US and China, which is beginning to hit Europe.

The report attributes to the domestic situation one of the tenths that are lost in 2019. The other, to the lower growth of the eurozone. By parts, according to BBVA Research, fiscal policy can become contractive by the end of the year. Thus, the short-term effect of rising wages and the creation of public employment is blurred. Regarding the rise of the SMI, after three months in force, the early evaluation of the impact is, for now, negative for the economy, waiting for an improvement in productivity that manages to balance this salary increase, according to those responsible for the study. .

In this context, the entity estimates that in 2019 employment growth could be between 0.1 percentage points and 0.4 points lower than the increase in the labor market that would have been recorded if the SMI had not been raised.

The expected growth of 2.2% is sustained again in the evolution of consumption, both private and public, and investment in construction and real estate. On the contrary, the behavior of exports of goods, investment in housing and capital goods, closely linked to the long-term forecast, are below what was expected in the previous report.

If this scenario is met, salaries will increase above inflation and the unemployment rate would be reduced to 12% in 2020, after having generated 630,000 jobs in the last two years, just over 300,000 per year, when only in 2018, 566,000 were created. The rise of 22% of the SMI is still unknown for all the analyzes, from the Bank of Spain, the Tax Authority, the European Commission or BBVA Research, but they all predict a fall in employment in the groups most affected by unemployment and a reduction in hours worked. Up to 195,000 jobs could stop being created in two years, according to the financial institution, for the salary increase.

Correction of accounts

BBVA Research also lowered the inflation forecast to 1.1% in 2019 and estimates that the public deficit will be reduced in the next two years, both by the reduction of unemployment benefits and by the lower interest charge derived from the conditions favorable financing. The deficit of the whole of the public administrations will be reduced four tenths to 2.2% in 2019, "once again standing above the objective of stability".

By 2020, in a scenario without changes in the current fiscal policy, a new correction of the State's accounts is expected up to 1.9% of GDP, which will mean a new deviation from the stability target (-0.5% ). In fact, the study service of the financial institution predicts a public debt of 82.7% of GDP this year and 81.1% of GDP next.


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