The beginning of the political cycle coincides with a weakening phase of the economy, in an uncertain international context, but not without opportunities. Growth is losing momentum, as evidenced by the slight fall in enrolment recorded so far this month (nearly 17,000 fewer enrollees in monthly and seasonally adjusted terms). Although the Christmas period tends to be positive for consumption, we can expect weak growth in the last quarter of the year.
The main drag comes from the European environment, with a German locomotive at a standstill, which has not yet assimilated the disconnection of Russian supply and the need to reduce its dependence on China, in the face of a faltering economic policy. The European Commission’s latest forecasts point to growth in the Eurozone of barely 0.6% for this year, with seven countries in negative territory. Nor does it help that the European partners are competing in subsidies to attract investment or gain competitiveness in a spurious manner, one to the detriment of the other. It is doubtful that the injection of more than 700 billion euros of public money in “state aid” (according to the Commission’s records for this year) will improve the potential of the EU as a whole at all.
The good news is that disinflation seems to be taking hold, thanks to the moderation of oil prices and wages, with two consequences. One, households could regain some purchasing power, provided the labor market continues to hold up. Two, the de-escalation of the CPI, together with sluggish demand, suggests a pause in the ECB’s interest rate hike, followed by a possible easing. This gives the Commission grounds to forecast a recovery in the eurozone: growth is expected to double to 1.2%. The hypothesis of the Brussels experts seems optimistic, but it is not implausible.
In any case, the Spanish economy would continue to be one of the fastest growing. Moreover, several factors are combining, in theory, to maintain momentum. Energy is cheaper than in the rest of the EU, contributing to competitive production costs. Gas costs 16.6% less than the European average, and electricity around 40%, according to Eurostat data for the first half of the year in terms net of taxes and charges. The energy and non-energy cost differential is reflected in a growing surplus in our intra-EU foreign trade.
The Achilles heel lies in the public accounts. Debt has been reduced as a proportion of GDP, but only because of the double effect of inflation and growth: it is estimated that, discounting both factors, indebtedness would remain where it was two years ago. Now that prices are moderating, growth is slackening and financial burdens are becoming more expensive, the budget hole can only be corrected by balancing revenues and current expenditure. In other words, by eliminating the so-called primary deficit. This is also the necessary condition for our liabilities to be sustainable, as the volume of bonds to be refinanced in the coming years will be very high, forcing governments to offer a high return on their bond issues.
In an inertial scenario, which incorporates the removal of half of the anti-inflation measures (more or less what emerges from a loose interpretation of the investiture announcements), the primary deficit would be reduced to 1% of GDP in 2024 (the total deficit, including debt interest expense, would be 3.6%, according to the Funcas consensus). Therefore, the adjustment would amount to some 15,000 million euros. An effort which, distributed over two or three years, seems feasible and socially acceptable, and is also essential to consolidate the growth of the economy and guarantee the welfare state.