The Bank of Spain will update its macroeconomic forecasts after the downward revision of the National Statistics Institute (INE) in relation to the growth observed in the second quarter of the year, which went from 2.8% quarter-on-quarter, in the publication of the advance previous, to 1.1%, in this new estimate. This has been confirmed by the governor of the Bank of Spain, Pablo Hernández de Cos, in the conference entitled ‘The challenges faced by Spanish non-financial companies’, which he delivered during the opening ceremony of the ‘Avanza Forum’, organized by the Murcian Association of the Family Business (Amefmur) in Murcia.
Last week the Bank of Spain raised its growth forecast for the Spanish economy to 6.3% for this year, one tenth more than in its previous June estimates, and improved the forecast for 2022 and 2 to 5.9% % for 2023. Now, once the implications of the deep downward revision of the INE for the second quarter of the year are analyzed, the body headed by Hernández de Cos will have to update its estimates.
However, the governor has stated that beyond the specific growth figures for this year, which will be affected by this review, he anticipates that “a progressive normalization of activity will continue in the coming quarters, under the assumption that it will continue the process of improving the epidemiological situation ”.
However, he acknowledges that “forecasts continue to be surrounded by a high degree of uncertainty” and that the dynamism of activity “continues to be highly conditioned by the momentum that economic policies are expected to continue to provide.” In this sense, it underlines that the household saving rate will experience a progressive reduction and would stand at the 2023 average, somewhat above its pre-crisis level. And it is that, he predicts, “households could decide to limit their spending levels in anticipation that the high volume of public debt accumulated with the crisis will lead to a tax increase in the future.”
In the case of housing, by virtue of the recovery of visas, it suggests “a more expansive behavior of the execution of works in the medium term, to which is added the lower uncertainty and the positive evolution of the labor market, which have reinforced the expectations of future household income ”. Uncertainty that also affects the foreign sector, since limitations on international movements “have a very long-lasting impact on tourist flows.”
He considers that “the progress of the immunization campaigns in the main tourist-issuing markets would contribute to the prolongation of the recovery of tourism”, although he has made it clear that he does not expect the pre-pandemic levels to be reached until the end of 2023. And he anticipates, from Similarly, a “rebound in exports of goods, in tune with the strengthening of the activity of the main trading partners.”
There is also uncertainty “about the degree of persistence of the current inflationary rebound”, which assumes that it will be transitory, so that the evolution would be consistent with an average inflation rate of 2.1% in 2021, 1.7% in 2022 and 1.3% in 2023, he points out.
Problems in the execution of the aid program
The governor of the Bank of Spain recognizes that the COVID-19 pandemic “has impacted with an unusual force on business activity, although with different intensity by sector and according to the size of the companies.” However, he celebrates that the result of the economic policies “has made it possible to avoid a wave of bankruptcies and massive closures of companies”, but has warned of “some” problems detected in the execution of the aid program approved in Spain which, in his opinion , should be resolved “promptly”. In any case, he points out, “by their nature, this type of program is aimed at a large number of companies, very small in size in most cases, which makes their implementation difficult and requires a periodic evaluation of the same that justifies its adaptation if the results show signs that the planned objectives are not being achieved ”.
Cos highlights the need for a consolidation program to be designed that “allows the high levels of deficit and public debt to be gradually reduced, defining the objectives, the terms and their composition between income and expenses.” Its execution, he says, “should start only when the recovery is solid.” In economic terms, it warns of the rebound in the number of bankruptcy proceedings this year, which has been especially intense in the case of individual entrepreneurs.
On the other hand, in the case of Murcian companies, although they have also suffered the impact of the crisis, it has been “less pronounced” than in the national group, which is attributed to the greater relative weight in the Murcian economy of the sectors less affected by the crisis, such as the primary sector, industry and the public sector; as well as the lower dependence on foreign tourism compared to other tourist areas of the Mediterranean arc and the islands.
Along the same lines, at the national level, the Bank of Spain Survey on Business Activity shows that companies “anticipated an additional recovery in activity and employment for the third quarter of this year, which would be generalized and more pronounced in the sectors that have been most affected by the crisis ”. In addition, the survey points to an improvement in the medium-term prospects, in such a way that it highlights “an appreciable increase in companies that expect to recover the level of activity prior to the crisis in 2022, which now reaches about 60% of those surveyed ”.
It also regrets the “low” growth in productivity, which is the main determinant of the “modest potential growth of the Spanish economy”. And, he said, Spanish companies “on average are less productive than those of other countries”, coupled with the problem of “scarcity” of innovation in companies. In this sense, he advocates for “eliminating regulatory obstacles to business growth” and reviewing “the different existing thresholds by size, which may pose disincentives to the growth of companies since their overcoming implies assuming higher costs”.
And, he stresses, “these obstacles to market unity could be limiting not only the creation of companies, but also their subsequent development capacity.” Cos concludes that the COVID-19 crisis “has had a strong impact on the economic and financial situation of companies”, but celebrates that the supportive economic policies “have contributed decisively to mitigate its effects.”
However, it warns of the persistence of “important” risks and vulnerabilities, especially in the sectors hardest hit by the crisis, thus highlighting the need to continue to maintain support, “focused on viable companies that are in a position of greatest vulnerability ”. It also recommends to increase productivity “carry out a review of the regulatory framework to promote business dynamics and growth, increase the degree of sectoral competition and reduce the current obstacles to market unity, in addition to reducing temporary employment in the labor market.” As well as “developing policies that stimulate the accumulation of human capital and technological capital”, areas in which he regrets that Spain has “shortcomings” compared to neighboring countries.