The triggered inflation shrinks the economy, which will not return until 2024 to the level of 2019

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The prices will stifle the consumption of families, who will spend more money in the shopping basket and will retain their savings due to the high uncertainty

Edurne Martinez

The second half of 2022 will not be as good as expected. Economic organizations were erroneous in assuming that the impact of the war in Ukraine would be limited to the first months of the year, but already immersed in June it has been seen that this is not the case.

Last week, from the World Bank to the Bank of Spain, passing through the OECD, they agreed to point out that the extremely high inflation that our country is suffering will take months to moderate, even more so now that the great rise experienced by energy at the outbreak of the war has been transferred to the set of goods and services, causing the biggest rise in core inflation since the 1990s.

And this price crisis will have a direct impact on the economic recovery of Spain, which was beginning to see the light after overcoming the hardest part of the pandemic. The calculations are unanimous: the country will not return to the economic levels of 2019 until 2024. It will take five years for the GDP to reach the vigor it was before the health crisis, which caused it to collapse by almost 11% in 2020 and which, due to the loop of bad news in which we are immersed, have not allowed it to overcome in the foreseen period. Thus, according to the OECD, Spain will be the only country of the 40 that analyzes that it will not recover the pre-crisis GDP until 2024.

Moreover, some analysts are also not clear that the 24th is the year of complete recovery: "International instability does not allow us to clearly see a global economic recovery at pre-pandemic levels, it is still too early," explains Fréderic Mertens from Wilmars. , professor and coordinator of the degree in International Relations at the European University of Valencia.

8.1% is the OECD average inflation forecast for Spain, the highest for now

The most alarming estimate is that of the OECD, which predicts an average inflation of 8.1% in Spain for this year and 4.8% for the next. And maximum prices inevitably entail minimum consumption. “Spanish citizens will think twice before buying or investing, since many already have to spend part of their savings on the basics of food, energy (electricity and gasoline) and means of transport,” indicates the economist. Knowing how long we will last is the biggest unknown: "Let's not forget that the most affected are the middle-class consumers, who at the same time are the engine of our economy," he explains.

The director of the Economic Situation of Funcas, Raymond Torres, details that consumption has already begun to suffer. According to INE data, it was reduced by more than 3% in the first quarter and, he explains, "the blow would have been more severe had it not been for the resource of savings, since wages are falling in real terms." A savings bag that, on the other hand, is losing value due to high inflation.

"The most affected are middle-class consumers, who at the same time are the engine of the economy"

In its latest forecasts, the Bank of Spain assumes that they had not foreseen the collapse in demand that has been observed since the beginning of the year. Their projections indicate that family consumption will grow by only 1.4% this year, when only three months ago they forecast 4.5%. But it is that the OECD goes further and anticipates almost zero growth in consumption, of 0.1% for this year, when previously a strong boost was expected as a result of the release of oversaving generated by the pandemic.

Hope is pinned on the recovery of employment, which shows a good evolution allowing higher income for the State via social contributions and that consumption does not end up collapsing. Tourism will be the leg on which the greatest weight of Spain's economic recovery will fall.

But it must be clear that this is not just a Spanish problem. "The whole world is paying a" high price for Russia's war against Ukraine, "said the OECD in its latest report, in which it details that the group of countries that make up the organization will end the year with an average inflation of 8, 5% and that this rate will only drop to 6% in 2023, which opens the door to a “recession”, they sentence. And it is that the world economy will grow only 3% this year, a point and a half below what was forecast just before the war broke out. Growth will slow further next year, to 2.8%. "Every day that passes increases the food crisis that threatens the world, with famines in some countries and widespread food price increases in industrialized countries," says Mertens of Wilmars.

The ghost of stagflation

In these circumstances a new concept appears: stagflation, a cocktail of relatively high unemployment, slow economic growth and high inflation. The professor at the European University of Valencia assures that the world economy should avoid an outbreak of stagflation in the style of the 1970s, due to the harsh consequences that this stage entails.

Stage that combines an economic slowdown, high unemployment rates and high inflation

The Funcas economist, for his part, acknowledges that it is a risk that is on the table, but in Spain to a lesser extent than in other surrounding countries. This is due to the availability of regasification plants, which allow the gas supply to be maintained even if Russian exports cease, apart from the "balloon of oxygen" that the tourism sector represents for us. Only time will tell how the decade that some were quick to call the 'Roaring 20s' plays out.

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Tourism will be the “oxygen balloon” of the recovery

Faced with a situation of economic stagnation due to high inflation, tourism is positioned as -the only- "oxygen ball" for the recovery of Spain after the pandemic. The director of the Economic Situation of Funcas, Raymond Torres, explains it, but the data supports him: the plane seats scheduled for July and August exceed 32.4 million, that is, there is only 6% left to recover the 2019 figures, a year that was also a record for tourism, according to the latest data from Turespaña.

"After an exceptional Easter, we face the summer season with good prospects, getting closer and closer to pre-pandemic normality," said the Minister of Industry, Commerce and Tourism, Reyes Maroto, after learning these figures. In addition, she pointed out that Spain "is confirming itself as one of the most desired world destinations this summer, which demonstrates the good health of the vacation segment."

In fact, several markets that send tourists to Spain are already registering figures higher than those before the pandemic. Mexico is 17.3% above the 2019 numbers, Austria 7.1%; Norway, 6.9% and Denmark, 6.2%. Poland also registered positive variations compared to three years ago (2.3%), as well as France, the Netherlands and Portugal, which grew by 1.8% compared to 2019.

In addition, the scheduled capacities from two main markets such as the United Kingdom and Germany already show a recovery level of 92.2% and 91.5% respectively, Turespaña details.

Economic organizations are based on these good data to ensure that the mainstay of the recovery will be tourism. The rating agency Fitch Ratings pointed out in its report last Friday that after a first quarter of general decline in economic indicators, it trusts that the second half of the year the situation will improve "thanks to the recovery of tourism, which will boost exports" .

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