The Spanish economy is lagging behind, but the factors that slow down the recovery this year will be the ones that drive it in 2022 and 2023.

The Spanish economy is lagging behind, but the factors that slow down the recovery this year will be the ones that drive it in 2022 and 2023.

The Spanish economy is lagging behind, but the factors that slow down the recovery this year will be the ones that drive it in 2022 and 2023.

Statistical oversight with the recovery of GDP

Spain is lagging behind in the recovery of the Gross Domestic Product (GDP) compared to its European neighbors. After the surprising and substantial reduction by the National Institute of Statistics (INE) of the preliminary data for the second quarter, the one that has just been published on the third quarter has also disappointed expectations.

This means that although the growth is robust in the last part of the year, the annual average will be clearly below 5% and the level of GDP will continue to be about seven points lower than it was before the pandemic, when almost all other countries are already recovering the pre-pandemic level.

Even so, the forecast that we have been managing since the spring of 2020 that Spain will achieve it before the end of 2022 remains valid. Everything points to real GDP will grow more than 6% next year and still close to 3% in 2023. In any case, it is worth reviewing the reason for this worse relative evolution and what will determine whether these forecasts are finally met, similar to the average of the market and international organizations.

The main factor that explains two thirds of the delay is household consumption, which is still 8% below 2019. employment has almost fully recovered, but disposable income is not yet and the savings rate remains very high, probably due to job insecurity and temporary employment. There is also a part of forced savings due to the unavailability of cars and other durable goods, whose sales are 18% lower than two years ago.

the fall of the vehicle manufacturing Due to the shortage of semiconductors, the heading of investment in transport equipment is more than 30% below 2019, weighing down GDP by almost one percentage point. Here we are in the hands of exogenous factors, which seem to be slowly beginning to be resolved. If everything goes as our experts expect, the rebound in production will be very powerful next year, allowing latent demand from consumers and companies to emerge.

The rebound in production will be very powerful next year, allowing latent demand to emerge

Another big culprit that Spain continues to lag behind is the sightseeing. Despite the notable recovery in recent months, income from foreign visitors in the quarter was barely half that of two years earlier, subtracting a point and a half from GDP. It is expected that 2022 will end with about 80% of the volumes of 2019, which would add a long point to growth and allow the recovery of some 200,000 direct and indirect jobs.

Lastly, it is worth noting the residential construction ballast. Although in large cities it seems that construction is already taking place on all the scarce land available, it turns out that the INE estimates that activity fell by 3% in the third quarter and that it is 19% lower than before Covid. But, in view of the rapid increase in visas for new construction and sales, it can be expected that in 2023 the level of 2019 will already be exceeded in 2023, adding more than half a point to GDP and some 100,000 jobs in each of the two next years.

Having said all this, it is important to remember that National Accounts is not an exact science. The Gross Domestic Product is nothing more than an estimate of the income generated, based on models that use very partial and imprecise indicators of activity and largely based on mere surveys, therefore biased by the sample and by subjective factors.

In addition, several major problems are added to this approximate exercise in a crisis and subsequent recovery as peculiar as the current ones. The first are the brutal changes in consumption habits and in other economic dynamics, which blow up many of the historical correlations.

The second is the changing seasonal patterns, for example, in consumption and tourism. It is perfectly possible that the INE is not being able to fine-tune these seasonally adjusted figures. Another is derived from technological revolutionwhich blurs the border between private and professional activity and spending and does not capture well the boom in teleworking, self-employment and micro-enterprises.

In short, Spain is lagging behind, but the same factors that slow down the recovery this year will be the ones that drive it next year, when European funds will also be more noticeable.

We have to get used to statistical noise and substantial revisions -up and down- of the preliminary figures. Therefore, it is convenient to pay more attention to background dynamics and levels rather than percentage changes. And in this sense, the diagnosis has not changed: at the end of 2022 the real GDP of 2019 will have recovered, but then it will be necessary to face the great fiscal adjustment and structural reforms pending, in full pre-election campaign. The road ventures tortuous.

*** Roberto Scholtes Ruiz is Director of Strategy at UBS in Spain.

Adminartua

Leave a Reply

Your email address will not be published.