April 19, 2021

Uncertainty and economy | Economy

Uncertainty and economy | Economy



In the elections of 2015 came the fragmentation of the Spanish Parliament and we entered a new era. For almost 40 years, three major parties had had sufficient majorities to govern with an absolute majority or coalition. These 40 years coincide with the period of greatest economic and social development in the history of our beloved Spain.

Between 1977 and 2008 the General Budgets had been extended only three times: 1978, 1982 and 1995. In 2016 we had a Government in office, there was no budget and GDP and employment grew by 3%. In 2017 and 2018, the Budgets for that year were approved in June and GDP and employment grew by 3%.

In 2019, the party of the Government of Pedro Sánchez has only 84 seats, Rajoy had 137 last year and, for the first time in the history of democracy, has seen how Congress laid down its Budget Law. The one of the Budgets is the most important law that the Courts approve every year, and to have the rejection of the majority of the Camera abre an unprecedented political crisis. But the Budgets have already been extended on January 1 and the economy continues its course.

The rise in pensions and the salary of officials will increase spending and tax increases remain in limbo. Therefore, as from 2015, Spain will raise the structural public deficit and we will continue to live on credit.

Economists in 2016 anticipated a slowdown if government was not formed and they were wrong. They also anticipated an increase in the risk premium and were wrong. In 2016, the ECB bought 80,000 million public debt, 40% of the total debt issued by the Treasury, and the risk premium remained stable. In 2019, without purchases from the ECB, the 10-year bond started next year at 1.5% and is trading at 1.25% today. Political uncertainty remains unaffected by investor risk aversion.

In the Economics Faculties we teach that uncertainty negatively affects the investment of companies and the creation of employment. And it increases the savings rate of families as a precaution. In 2018, with a motion of no confidence, the investment rate was 22% of GDP, more than 20% of GDP in 2015. And the savings rate for families last year was 5% of their disposable income, half that in 2015 before starting the political fragmentation.

It seems evident that political disaffection in Spain has vaccinated the economy from the instability generated by the fragmentation of Parliament. In the end, reality ends up imposing its rules. If the risk premium and the savings rate of families increase and the investment of the companies falls, we will suffer the costs of uncertainty. At the moment, with the European economy stagnating, the Spanish economy continues to grow above expectations, due to the driver of consumption, domestic investment and abundant international financing at interest rates close to 0%. We will see.

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