The slowdown of the European economy does not seem to be affecting growth in our country. Activity continues to increase, albeit at a slightly backward pace, in line with the mild deceleration pattern announced by most analysts. Short-term indicators for the first two months of the year, such as the economic sentiment index and the purchasing managers' surveys (PMI index), show values similar to those of the last quarter of 2018, when the economy grew at an annual rate of 2.4% The evolution of affiliation, close to these growth rates, corroborates the feeling that the economy holds the downpour that falls on Europe.
However, this sensation hides contradictory and unsustainable tendencies. The worst part is the industrial production, especially due to the collapse of export markets. The OECD and the ECB have just cut their growth forecasts of international markets for this year, which explains that the eurozone will grow only 1% this year, practically half of what was anticipated just three months ago. The good performance of the industrial production index in January (an annual increase of 1.8%), does not erase the tendency to slow down. In addition, this good data reflects specific upturns in the energy sector, and also the temporary boom in sales of the food industry in a United Kingdom in the process of accumulating stocks, before an unpredictable Brexit.
On the positive side, the progression of domestic demand is confirmed, encouraged by both private and public consumption. During the first two months of the year, the activity indexes of the services sector remained broadly unchanged from the solid values recorded at the end of 2018. In addition, tourism shows signs of recovery – the entrance of tourists increases at a rapid pace annual higher than 7%, with data seasonally adjusted until January-. If confirmed, the sector would come out of the doldrums suffered last summer.
The investment presents a different evolution. Although there is no doubt about the strong dynamism of public works, the indicators of private construction demand point to a slight deceleration. Also investment in capital goods is oriented towards lower growth. However, order books are still at favorable levels.
It seems unlikely that this pattern of growth, with a strong pull of domestic demand, especially consumption, coinciding with the collapse of external markets, is altered by the decision of the ECB to prolong monetary stimuli for longer than initially provided. Undoubtedly, the launch by the ECB of a new round of liquidity injections in banks, conditional on the granting of long-term loans to companies and families, is a step in the right direction. In addition, the cost of the public debt has become cheaper since the decision of Draghi (the yield of the Spanish 10-year bond approaches the minimum of the whole economic history) and the Euro is depreciating against the dollar.
But none of this will suffice to revive growth in the eurozone, nor private investment in our country. And the fact is that the limitation no longer comes from a scarcity of credit, nor from high interest rates, but from an unexpected cut in demand prospects, as diagnosed by international organizations in their latest forecasts.
Therefore, in the absence of hypothetical reactivation measures to be adopted in countries that have a fiscal cushion, the external panorama is overshadowed, which will ultimately weigh on our economy. For the moment, the GDP could increase by 0.6% during the current quarter, a rate still three times higher than the European average. But do not get our hopes high. During the coming quarters, the current decoupling, sustained by an expansive fiscal policy, will clash with the external constraint.
Raymond Torres is director of Coyuntura in Funcas. On Twitter: @RaymondTorres_