The ESADE Economic and Financial Report, June 2018, presented today in Madrid, maintains the school’s previous forecast of 2.8% growth for the Spanish economy and increases the growth forecasts for the eurozone and the United States to 2.4% and 2.9%, respectively. The study, directed by David Vegara and carried out in collaboration with Banc Sabadell, also predicts global GDP growth of nearly 4%.
In the case of Spain, the ESADE experts’ decision to maintain the forecast of 2.8% growth was based on positive developments in consumption and job creation, the maintenance of very low interest rates, a fiscal policy makes little pretence of achieving consolidation, the approval of a budget and a slightly depreciated euro exchange rate with respect to late 2017. “These supports will offset – and then some – the increase in oil prices and the uncertainty associated with the new government, which recently came to power with a parliamentary minority,” explains the report.
At the international level, ESADE raised its growth forecasts for the eurozone and the United States to 2.4% and 2.9%, respectively (0.4 and 0.9 percentage points higher than its forecasts in January). The decision to increase these forecasts was a result of sustained growth in the global economy during the first half of 2018, buoyed by positive expectations, ongoing expansionary monetary policies, favourable financial conditions and the effect of the US tax reform on the overall outlook.
Investment – still the main driver of growth in advanced economies – has recovered in recent months in numerous countries that export raw materials. Consumption, meanwhile, has been the primary driver in China and India, where growth figures reached notable heights – 6.6% and 7.7%, respectively – in the first half of the year. Meanwhile, international trade, which tends to track investment closely, has continued to grow at a similar pace to that seen in late 2017 (4.9%). These circumstances, combined with the rising prices of raw materials, are taking the pressure off of many emerging economies, prompting ESADE’s experts to predict that the world economy could grow by as much as 4% in 2018.
Old and new risks on the horizon
The good pace of growth has also been favoured, in part, by the fact that certain economic and geopolitical risks present in early 2018 now look considerably less dramatic (for example, the opening of dialogue with North Korea) or have not yet materialised – or, in some cases, have materialised only recently. This category includes the protectionist measures announced by the Trump Administration – which have yet to provoke a forceful response from the European Union or China – as well as Brexit. On this latter topic, the ESADE Economic and Financial Report warns that “the clock is ticking and the terms of the United Kingdom’s withdrawal from the EU have not yet been determined”, in a context characterised by tension between the British government and the parties that support it, on the one hand, and the resolve of the European negotiators, on the other. A smooth transition does not appear to be in the cards.
In addition, the report notes that the global economy will have to keep an eye on two new threats: Iran (resulting from the unilateral withdrawal of the United States from the nuclear deal and the unpredictability of the Iranian response to the announced sanctions) and Italy (which has not seen a real increase in per-capita GDP since it entered the eurozone, has seen its share of world exports shrink considerably and continues to increase its public debt). “It remains to be seen whether the new government’s programme and the fiscal expansion it entails will square with the commitments set out in the Stability and Growth Pact and the need – with or without the European Commission’s oversight – to reduce Italian public-sector debt, which stands at 132% of the country’s GDP,” explains the ESADE report.
In short, the ESADE experts insist that the main financial risk remains a faster-than-expected increase in interest rates by the European Central Bank and the US Federal Reserve, which could come to pass if price indices perform unfavourably.
Carlo Gallucci, ESADE professor and vice-rector of URL, awarded honorary doctorate by the Catholic University of Cordoba (Argentina)More info