September 21, 2020

Times for new reformist impulses | Economy


The new Government is faced with an international landscape overshadowed by the multiplication of trade wars, the weakening of multilateralism and the flows of international productive investment and the collapse of industry. And a rapid improvement is not anticipated in the coming months, so our growth prospects, although still favorable compared to the rest of Europe, will be constrained for some time.

The calls for greater prominence of public budgets in the revival of the European economy have been ignored except, paradoxically, in countries that in principle had less margin such as France. Macron has responded to social revolts with more spending and fiscal cuts, aggravating the public deficit to bring it to the threshold of 3% of GDP. Your finance minister has already announced containment measures. Neither the surplus countries want to take over from France, nor can the European public treasury allow it in the short term, in the absence of more concrete promises from Von der Leyen regarding the creation of a countercyclical European mechanism.

On the other hand, the hypothetical budding agreement between the US and China will not close the geopolitical struggle between the first two powers. Washington’s pressures will continue at least until there is a change in the production model promoted by Beijing, based on interventionism, export support and the desire for technological domination. International trade suffers from tariff escalation. The volume of international exchanges increases at an annual rate close to 1.5% (according to World Bank estimates), three times less than during the recovery period. A stalemate that has consequences on foreign direct investment, according to the recent World Bank report. The entry of productive capital in our country reached 9,800 million euros until October, a quarter of that a year earlier.


In Spain and France the industry

resists better than in Germany

Industrial production index, in rates

interannual Calendar corrected data

and seasonality

5

4

3

two

one

0

-one

-two

-3

-4

-5

-6

The services moderate

slightly its growth

PMI services, in index

Sources: Ministry of Economy,

Markit Economics and Funcas.

In Spain and France the industry

resists better than in Germany

Industrial production index, in interannual rates.

Data corrected for calendar and seasonality

5

4

3

two

one

0

-one

-two

-3

-4

-5

-6

The services moderate

slightly its growth

PMI services, in index

Sources: Ministry of Economy,

Markit Economics and Funcas.

In Spain and France the industry

resists better than in Germany

The services moderate

slightly its growth

Industrial production index, in rates

interannual Corrected data

of calendar and seasonality

PMI services, in index

5

4

3

two

one

0

-one

-two

-3

-4

-5

-6

Sources: Ministry of Economy, Markit Economics and Funcas.

Times for new reformist impulses



On the other hand, an industry rebound was expected, after a period of withdrawal as a result of the global slowdown and adaptation to the demands of the fight against climate change. However, the indicators show a prolonged drop in activity. In Spain, the sector endures something better than in the rest of Europe, but industrial production is barely advancing. The surprising rebound in the production of capital goods is not enough to compensate for the fall in the automobile sector.

Monetary policy remains, an instrument already overloaded because interest rates can hardly fall further, and credit reactivation measures face a reluctant demand. However, its effects are expected to be noticed in the European economy in the short term.

The labor market is another pillar of the expansion. Despite the slowdown, employment is still being created and wages rebound, both in our country and in the rest of Europe, supporting the income of families and spending on consumption. It is estimated that the disposable income of Spanish households increased by 25,000 million in 2019, almost the same as the total of France and Italy (in Germany the increase reached 75,000).

But the main factor that justifies a moderate optimism is the relatively healthy financial situation of the European private sector (although with worrying increases in high-risk corporate debt), as well as a productive fabric reactive to the recovery of the global economy, when this occurs . This is precisely what the main international organizations anticipate from the second part of the year.

However, the Spanish economy could grow around 1.5% this year, still half a point more than the European average, before recovering some dynamism in 2021. A result that nevertheless forces us to a new reformist impulse, before the persistence of important social and economic imbalances.

Raymond Torres is Funcas’s joint director. On Twitter: @RaymondTorres_

Debt

This week the Public Treasury issued public debt in favorable conditions, without major changes with respect to previous operations. The bonds with maturities at three and years were placed at negative interest rates (-0.391 and -0.103% respectively, values ​​close to the previous auctions). In the case of obligations with maturities at 15 years, the interest rate was also maintained at reduced levels (below 0.9%, two tenths above the November auction). In secondary markets, the spread with the German bond (risk premium) remains at reduced levels.

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