Taking the economic route: Under the yoke of prices

“The most pressing challenges facing the Spanish economy in the coming months stem from the worsening of the energy crisis and its impact on five key factors: gas availability and price, inflation and real spending capacity of families and companies, growth growth. The rest of the European economies, the way monetary policy tightens. and the agents’ response to an increase in uncertainty”. Your diagnosis Nuria BustamanteThe ‘chief economist’ of Caixabank Research brings together an important part of 10 facets of polyhedra, which can summarize the great challenges that lie ahead in the resumption of the economic trajectory.

1. More expensive energy

August bids farewell as the most expensive month in history for electricity bills. The average price in the wholesale market is 307.80 euros per megawatt hour, almost three times that in the same month in 2021 (105.99) and almost seven times that in 2019 (44.96 euros). The cap on the price of gas used in electricity generation (the so-called “Iberian exception”) in any case serves to prevent further increases in prices. As a result, the OCU calculates that the average household electricity bill in August rose to 130.99 euros, compared to 68.45 last year. As long as the war in Ukraine continues and gas prices soar due to Russian supply cuts, it’s hard to set a ceiling on the electricity price. The same is true for gas, which must be supplied for heating this winter, but in Spain, at least for the time being, there is talk of austerity measures rather than rationing. Shows slightly less pressure fuels. Over the summer, they saw an average drop of 16.61%, despite the average price of gasoline being 26% more expensive than last year and diesel 44% more expensive; this is without taking into account the 20 cents per liter bonus that the Government will maintain at least until the end of the year.

2. Restrictions on energy consumption

All of Europe has committed to reduce its gas consumption by 15% (7% in the case of Spain) and the Government is preparing a contingency plan to face winter. Currently in Spain, austerity measures affect the lighting of shop windows and public buildings, the limit of air conditioning (27º) and heating (19º), and the closure of doors in shops. The government is negotiating a new contingency plan, which it should submit to Brussels by the end of September, and although it excludes consumption allocation in its statements, it is an undeniable lead whether the effects of the war will be on Turkey. Putin It’s going to the extremes that are no longer part of the center stage in Europe. Without enforced restrictions, many families are at risk of energy poverty, and many companies are already limiting their consumption and will likely do much more.

3. 10% poorer

The increase in energy prices is the main engine that feeds inflation over 10%. In August, the inflation rate fell four-tenths to 10.4%, and economic vice president Nadia Calviño is confident that the downward path will continue in the coming months, although she acknowledged that the uncertainty due to the war was too great. in Ukraine. The problem is, it’s not just energy that’s getting more expensive. There are foods like eggs that increase 22% in a year; or chicken, 16.3%. Worse still: If the most volatile energy and unprocessed food prices are eliminated, so-called core inflation reached 6.4% in August, a dire indication of the risk of ending the surge in energy and food prices. It floods the entire economy.

4. Interest rates on the rise

To combat inflation, central banks have embarked on a worldwide rate hike. The ECB raised interest rates (0.50 percentage points) in July for the first time in 11 years, and analysts doubted whether it would raise rates again by 0.50 percentage points or more (0.75 percentage points) at its September 8 meeting. Central banks want to convey a message of determination that leads economic agents to a conviction that inflation will not be permanent so that they can temporarily take on the sacrifices of income losses (wages and benefits) and avoid the runoff effects of inflation. Currently, the rise in interest rates is widely expected by mortgage Euribor, which is the main indicator of floating rate mortgages. August closed with an average Euribor of 1,249 percent, the highest since May 2012, after posting an increase of 1,747 points in a year. It’s hard to put a ceiling on the rise of Euribor. Banking users’ association Asufin forecasts an average of 2.2% in December and calculates that revisions at that time would make family loans more expensive at 130 euros per month and 1,500 euros per year.

5. The ghost of stagnation

Inflation reduces the purchasing power of families. With the same salary, you can buy less, and consumption indicators are starting to take this into account. Retail trade sales fell 11.7% in July (3.3% excluding inflation). Companies that cannot transfer cost increases to sales prices are getting poorer. The uncertainty is huge because no one knows where the end of this tunnel lies, and spending and investment decisions are quarantined and slowed down. If the slowdown in activity becomes too great, it could go into a recession. Currently this risk is not perceived to be imminent in Spain, but there is growing agreement among those predicting a technical recession in the eurozone, with growth falling by two-quarters. In any case, the slowdown in Spanish activity is becoming more pronounced, and the Independent Financial Responsibility Authority (Airef) forecasts a 0.2% drop in GDP in the third quarter compared to the second, which corresponds to an inter-year rate. in the period of 3.4%.

6. ‘A warm autumn’

While an average of 2.5% salary increase in the collective bargaining agreements made so far in 2022 has barely come, on the other hand, there are many companies that cannot reflect the increase in energy costs and raw materials into their prices. narrowing of margins. Unions warned of a “warm autumn” of mobilizations if companies don’t take on payrolls that compensate for inflation and the Labor Minister. Yolanda Diazexpressly endorsed these calls. Chairman of the General Council of Economists, Valenti’s Fieldwarns against the risk of confrontation: “The important thing is that we don’t get nervous and we don’t get caught in a spiral of price increases,” he says. “We all have to shoulder the wheel. Administrations too. We have to be aware that there are people who are going to have a very bad time, and administrations have to be very efficient at helping and stop showing off.”

7. The long-awaited and useless lease agreement

in the background, Valenti’s Field points to the need for a three-pronged income agreement – workers, businessmen and management – that everyone has resorted to but which has not come to fruition. “The dreaded runoff of inflation could be unleashed if the government doesn’t act by promoting an income settlement that includes civil servants and retirees,” he warns, prolonging the spiral of price increases over time. José Emilio BoscaProfessor and Fedea researcher at the University of Valencia. “We all impoverish ourselves, and when we talk about an income agreement, we talk about how to distribute that poverty,” he adds. According to this researcher, “so far these runoff effects have not occurred. Nor in Europe. But it does not help to seek a climate of understanding, with attitudes promoting trade union mobilization,” he warns, without explicitly mentioning the Minister of Labour. , Yolanda Diaz. The compliance of a three-year Government Collective Bargaining Agreement (AENC) between employers and unions is shown as the cornerstone of this lease agreement. It was impossible to reach an agreement in May. Both sides decided to sit down at the table again at the beginning of September, but there is still no date for that. The increase in the minimum interprofessional salary (SMI) should be one of the pillars of this alleged income settlement.

8. Budgets: the last of the legislature

Amid all this magma of inflation, impoverishment and economic slowdown, the Government is facing the challenge of negotiating the 2023 State Budget project. should be implemented in the pre-election period. Therefore, some Budgets may not be implemented, but they will set the face of the Government’s economic policy. José Emilio Bosca. The increase in public salaries and pensions until 2023 are two important aspects of these accounts. Also, incorporating the effects of two new taxes on the extraordinary benefits for banking and energy companies that the House of Representatives must process in the coming months. The government has already said it is saving a major tax reform for a future legislature and a new regional financing model that will replace a new regional financing model that expired eight years ago.

9. Unpopular pension reform

Moreover, in the last period of 2022, the Government relinquished the task of negotiating and approving the third round of pension reform. After approving a reassessment of the subsidy with the CPI and the new early retirement scheme (in the first round) and the changes in the self-employment regime (in the second round), the changes that help finance the rising cost of the system. Extending the current 25-year calculation period for calculating the pension amount or starting to increase the maximum contribution base are the two controversial issues that are part of the third round of reforms and are probably the most unpopular. “The first stage was easy. The stage comes when we’re going to get the money to pay for the first stage,” he sums up. Bosca.

10. A new recovery ‘mini plan’

The new challenges imposed by the energy crisis and inflation seem to have pushed into the background what was identified as the main challenge in 2021 and 2022: the effective management of the ‘Next Generation EU’ European funds allocated to Spain (140,000 million subsidies and loans) to ensure post-pandemic recovery and promoting structural reforms that should lead the Spanish economy towards the triple green, digital and social transition. The government submitted to Brussels its Plan for Recovery, Transformation and Resilience in 2021 with 212 commitments to reform and investment in return for access to 70,000 million grants allocated to Spain. Now the Government will offer another investment and reform ‘mini-plan’ (additional to the first plan) as a condition for accessing the 70,000 million soft loan tranches to finance projects between 2023 and 2026.