Growth and jobs data released this week reinforce the vision of a resilient economy in the face of monetary and geopolitical adversity, but also point to near-term weakening factors. Due to the good development of the labor market and the agreements to restore the purchasing power of salaries, private consumption is consolidating as the most dynamic component. It is also likely that families maintained spending by drawing on the excess of accumulated savings. Another factor is fiscal policy: public consumption continues to grow faster than the economy and is almost 10% above pre-pandemic levels.
However, investments are stalling. And the accelerating credit tightening, confirmed by the ECB’s latest bank credit survey, suggests a weak scenario for the coming months, even taking into account the incentives of next generation funds. It is surprising that despite such a wave of European transfers, investments have not yet reached pre-pandemic levels. For now, companies remain cautious, opting to reduce debt or accumulate cash. In September, its bank deposits increased by 10.6 billion euros.
In addition, the foreign sector, which was a strong driver of recovery last year, is suffering from the stagnation of the European economy, the main source of income from abroad. The problem is reduced external demand, not loss of competitiveness. Proof of this is that Spanish companies are gaining ground not only in international markets but also in the domestic market: imports are falling, the opposite of what usually happens when consumption increases. In any case, exports of non-tourism services continue to grow strongly – at least 22% above pre-pandemic levels – without, however, compensating for the decline in goods exports. Tourism continues, although its full normalization weakens the prospects for the next season.
All of this raises questions about the sustainability of the current growth pattern. The tailwinds that have boosted private consumption are fading in line with slower job creation. Membership is increasing, partly due to the incorporation of foreign workers (more than half a million people since the beginning of 2022, almost half of the total jobs created). But the extraordinary numbers of spring are lagging behind. Wages are also slowing: Compensation of employees rose 4.2% in the third quarter, almost two percentage points less than the first; This slowdown, coupled with the resilience of the CPI, leaves little room for expanding purchasing capacity in the final half of the year.
As for public consumption, its future development should reflect the need to contain fiscal imbalances, a necessary objective to cope with the sharp increase in government financing costs expected next year.
To broaden the perspective: the productive apparatus emerges from a series of crises with a favorable competitive position, strengthened by the strong surplus of foreign workers. This is an advantage to benefit from a hypothetical turnaround in the European economy, such as the IMF forecasts for the next two years. However, much will depend on the future of the conflicts in Ukraine and the Middle East, as well as the impact of the ten interest rate hikes, the effects of which have only partially penetrated the economy. In any case, European reactivation, together with a stronger driving effect of European funds, would also help to unlock investments in business equipment and productivity, the most important missing piece of the puzzle of the Spanish economy. Geopolitics and the unknowns surrounding business investment determine growth and the ability to improve levels of social well-being.
working hours
According to the EPA, occupancy increased 0.8% in the third quarter, well ahead of the economy (0.3%). This difference is largely explained by the decline in average hours worked per employee, a trend observed since the pandemic. So far this year, each worker has worked an average of 32 hours, compared to 32.2 in the same period last year and 33.4 in 2019. This development is mainly due to the decline in the effective hours worked by full-time employees.
Raymond Torres is Funcas’ situation director. In X: @RaymondTorres_
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