The Bank of Spain On Wednesday, he gave a note of attention to the government that is formed after the next elections. The supervisory body sees essential that the public accounts are prepared in the face of a worsening economy, and foresees that this year the hole in the accounts, the so-called public deficit, will only go down two tenths, from 2.7% of GDP to 2.5%, and this despite having one of the largest deficits in the EU and record growth of the economy. It is partly due to lower inflation that prevents the deficit from being diluted when compared to GDP. But also to the so-called social fridays of the Executive of Pedro Sánchez.
"One by one the measures do not involve large quantities [de dinero]", said the director of the bank's study service, Óscar Arce, during the presentation of his quarterly projections, however, as he explained, taken together they represent a worsening of the accounts, in total, also taking into account the effect of inflation, up to one tenth, about 1.2 billion, and this despite the fact that the collection and the strong increases in contributions approved in these decrees are improving.
"We do not have on the table a strategy of consolidation of public accounts that helps reduce this vulnerability," said Arce. And he added that in that context fiscal policy would adopt a clearly expansive and pro-cyclical tone in an already expansionary phase. "This leaves us unsatisfied," he concluded. The Bank of Spain has also been surprised by the strong growth in public consumption in the last quarter of 2018.
Regarding the rise in the minimum wage, the Bank of Spain maintains that it is still too early to know the impact. However, Arce explained that the data of the first two months do not refute the supervisor's thesis that some 150,000 jobs will be lost. They see that it is having an effect on "the most vulnerable groups".
The Spanish economy resists
Despite the deterioration of global activity and especially the euro zone, the Spanish economy maintains "a remarkable dynamism," says the Bank of Spain. In its quarterly report published on Wednesday, the agency predicts that between January and March GDP grew by 0.6%, only one tenth below the previous quarter.
"Spain has not been immune to the external disturbance, which has manifested itself in the final stretch of last year in a notable loss of vigor of exports," says the document. However, the Bank of Spain considers that domestic demand has mitigated this effect. To the point that there has been no deceleration like that experienced in the rest of the EU. Private consumption has pulled thanks to the creation of employment, low inflation, the decline in the savings rate, consumer credit and the boost that budgets have injected into household income, especially in the second half of 2018 with increases in pensions and salaries of civil servants.
The body led by Pablo Hernández de Cos believes that the expansive phase will continue in the coming years, with a growth that will go at a slightly slower pace: of 2.2% in 2019, 1.9% in 2020 and 1.7% in 2021. These assumptions rest on the fact that during this year the uncertainties disappear and global demand improves in a context of very favorable monetary policies. "The negative contribution currently presented by external demand would tend to moderate throughout the projection horizon," he says. Regarding employment, it is expected that there will be a moderation in their growth rates in line with GDP. Although in 2019 it will be somewhat worse for the destruction of jobs that will lead to the rise of the minimum wage. With the active population falling by the demography, the unemployment rate will be reduced up to 12% by the end of 2021.
However, the Bank of Spain stresses that the risks are increasing and could worsen these prospects. Although it is expected that the trade dispute between the United States and China is resolved, other tensions could emerge. The march of the euro zone could still get worse. There is still the possibility that there is a Brexit without an agreement. And it could happen that the response of the Chinese authorities to its economic slowdown is proven insufficient. In the domestic sphere, the supervisor stresses that Spain could be seen to continue doubts about the orientation of economic policy until a new government is formed. In the opinion of the bank, the next Executive would have to resume the consolidation of public accounts and the adoption of reforms that encourage potential growth.
The global conjuncture
The slowdown that began in 2018 has continued to manifest itself in 2019. However, it is not the same for everyone. According to the Bank of Spain, it contrasts the worst behavior of the euro zone against a US economy that holds out better. The doubts about China continue. And the truth is that world trade suffers in a scenario of uncertainties, commercial tensions and increasing risks.
In this context, international organizations have cut growth forecasts downwards, the supervisor points out. However, there are substantial differences between them: while some consider that it is something transitory, as has been the case of the Bundesbank until now, others see a more persistent character. And before the risks of deterioration the authorities, with the Fed at the head, have reacted.
The economy of the euro zone is more focused on exports. Which is causing me to acknowledge much more the slowdown of the trade. The problem is that it has been seen that these lower sales abroad are already translating into lower investment, says the Bank of Spain. However, the ECB expects a certain rebound in activity in the second half of the year. Even so, the eurobank has taken measures to preserve the monetary stimulus, points out the Spanish supervisor.