Spain resilient in face of global slowdown
The Spanish economy remains resilient, for the time being at least, despite its persistent fiscal imbalances, and quarter-on-quarter growth of 0.6% is expected for the second quarter of 2023, driven by the services sector. The positive performance of Spain’s economy in recent months is mainly because of the favorable evolution of investment and an increase in exports. However, private consumption has been weaker and fallen more than 1% in the first three months of 2023. This is one of the main findings of the 33rd edition of the Esade Economic and Financial Report (second half of 2023) published with help from Banc Sabadell. It also emphasizes the considerable impact that financial costs will have on household decisions and on investment and production decisions by companies.
Toni Roldán, director of EsadeEcPol and the report, highlighted that “the economic forecasts for Spain are more favorable than for other EU countries. The main indicators include below-average inflation and the good performance of its job market. But these good results are less significant against a temporarily broader backdrop. In addition, our economy is not immune to the global scenario and has its own weaknesses, so the situation could deteriorate in the coming months.”
Less borrowing and more saving
The report’s authors underline the decrease in consumer borrowing and the increase in household saving in Spain. “Data from Spain’s central bank have begun to reflect a marked decline in private consumption, probably due to the impact of higher interest rates on the real purchasing power of Spanish families. There has also been a decrease in the consumer loans granted, which could affect household investment” said Manuel Hidalgo, professor at Pablo de Olavide University, senior fellow at EsadeEcPol and co-author of the report’s chapter on the economic scenario. Although rising interest rates are expected to have less impact in Spain than in the rest of Europe because of lower levels of private borrowing in Spain, the fallout could hit the most vulnerable sectors of the population hard.
The rate of inflation has plummeted in recent months due to lower energy prices and the quantitative tightening undertaken by the ECB, with Spain being the country in the eurozone with the lowest increase in prices. This downward trend for inflation is expected to persist during 2023 and stabilize during the rest of the year at around 3%, but falling below 2% in the first months of summer.
Foreign trade has benefited from the rapid decrease in prices in Spain which has boosted exports and improved the trade balance, although the reliance of economic growth on exports and tourism might involve risks if the global economy weakens.
Fiscal policy will play a key role in Spain’s economic growth in 2023, although early elections in July limit the possibilities of accelerating spending. Despite the slow initial uptake of European funds, this is expected to increase significantly during the rest of the year. This boost could partly or totally offset the decline in growth forecast as a result of the slowdown in the global economy.
Recession in US and little growth in the eurozone
Globally, an economic upturn has been observed in 2023, driven, among other things, by the reopening of China, the good performance of the job market and the performance of the service sector. However, throughout the second quarter of the year, a slowdown is forecast in many countries. According to the International Monetary Fund, the US economy could enter a recession and the eurozone could experience very little growth.
“Inflation continues to fall thanks to the lower prices of resources such as oil and the intervention of central banks. However, core inflation is still at high levels, which suggests that the return to stability might take longer than expected”, pointed out Josep M. Comajuncosa, professor at Esade and co-author of the chapter on the economic situation.
According to the authors of the report, several latent risks exist globally, such as (1) tensions in the banking sector that could make borrowing and the cost of issuing government bonds more expensive; (2) the implementation of monetary tightening to control inflation but which might slow down growth; (3) potential debt problems in advanced and emerging economies due to historically high levels of borrowing; and (4) the need to normalize fiscal policies to reduce deficits and borrowing.
This edition of the Esade Economic and Financial Report for the second half of 2023 entitled “The moment of Artificial Intelligence”, also features articles by Núria Agell, professor in the Esade Department of Operations, Innovation and Data Sciences, and coordinator of EsadeD3; Anna Bayona, professor in the Esade Department of Economics, Finance and Accounting and director of the Economics and Finance Research Group; Manuel Cebrián, distinguished researcher and tenured chair of Excellence at Universidad Carlos III, Madrid, and Mariano Fernández Enguita, emeritus chair of Sociology at Universidad Complutense de Madrid.
