The rapid and aggressive tightening of monetary policy in the euro area resulted in eight consecutive increases in interest rates. Go from an official utasa at 0% to the current 4.25% in just thirteen monthsSpain punishes Luxembourg and Belgium more than any other country in the region: moderately restrictive in real terms for these three economies, very cohesive for the other sixteen economies and, in most cases, clearly expanding.
The fact that the effects of a monetary policy common to all 20 eurozone countries are different from each other is due to the inflation differences existing in the monetary area. Spain remains the third lowest inflationary country, as confirmed on Friday by the European statistics office (Eurostat). Only Belgium (1.7%) and Luxembourg (2%) have a lower overall price level than Spain. (2.1% at a harmonized rate).
Relatively low Spanish inflation – close to the 2% target and well below the Eurozone (5.3%) and EU (6.1%) averages – indicates an advantage in stimulating economic activity, because less loss in the purchasing power of the population (and, as a result, less erosion in domestic demand) and greater foreign competitiveness of the country’s goods and services.
But, with the same nominal interest rate, real higher in countries with a lower general price index. For Spain, the 4.25% in force in the euro area since July continues to be positive (2.15%) in real terms, when inflation relief is taken into account, while it stands at negative rates (-1 05) in the euro area as a whole. %), as in fourteen of the 20 member states, including the other three major economies in the region: Germany, France and Italy. In Slovakia, the most inflationary eurozone country, it is overexpanding by 4.25%: the real rate is -6.05%.
This asymmetry has occurred at other times as well.. This The great Spanish credit and real estate bubble of the second half of the 90s and early 2000s largely fueled by the monetary policy of the European Central Bank. Too broad for an economy like the Spanish generally faced with an above-average price level. Now, by contrast, the central bank’s decisions are more restrictive than the Spanish economy needs.
This situation is getting worse, as the Spanish economy continues to be, albeit chaining three years of strong economic growth and massive job creation. country with the highest rate unemployment from EU And as a result of the massive collapse in national GDP during the 2020 lockdowns due to Spain’s high dependence on tourism and the hospitality sector, it was barely able to recover its pre-COVID production level a quarter of a year ago. For such reasons The economic cooling followed by the ECB to control inflation is more unfavorable for Spain. more and more than the rest, when the current price level of the country does not justify such monetary aggression, which is decided on the terms of Europe, not Spain.
The lower slack in job vacancies as a result of the higher unemployment rate means: Second-round inflationary impact risk in Spain is also potentially lower Despite wages in the country starting to improve and even education and qualification asymmetries in certain sectors and skills making it difficult to fill jobs, pointing to very pronounced gaps in certain labor market profiles.
Although the euro lost position against the dollar last month, it still shows a 7.77% appreciation in last year’s accumulated value due to the forecast that the monetary discipline strategy will travel further in the euro area. While the United States and a gaining euro may help curb inflation, it worsens competitiveness in domestic and foreign markets vis-à-vis third countries, helping to slow growth, which is the ECB’s 2019 target. his crusade to tame prices,
Spain also suffers more from the rise in interest rates because It is the fourth country with the highest public debt level in the European Union (112.8% of GDP)., compared to 91.2% in the euro area and 83.7% in the EU at the end of the first quarter) and just below the country indebtedness of Greece, Italy and Portugal, all of which are southern countries. Interest rates are transferred to the cost of debt, so raising rates means a greater financing effort for national Treasuries.
HE The dynamism of the Spanish economyAn increase in debt service to pay off debt at a lower cost and extend their maturities, as investors’ strong appetite for bonds and bonds is due to the lack of payment for bank deposits (which has made the latest headline numbers cheaper) and Spain’s use of recent zero and negative rates to renew the division. they reduce but do not cancel; Private investment acquired during the major phase of quantitative easing, investment purchased through the special anti-pandemic program will continue to be renewed until at least the end of 2024.
Private sector debts are another concern in interest rate hikes. This time it works in favor of many families choosing to subscribe to fixed rate mortgages when banks incentivize 0% rates to charge their customers slightly higher interest rates. They are now a factor of peace of mind for borrowers. Even if, The prevalence of variable rate mortgages is higher in Spain than in comparable countriesmeans an assumption of greater risk in cycles of increasing interest rates. For now, bank default is under control (rate at 3.59%), but chained two consecutive months of upswing.
Another positive factor is the total indebtedness level of the private sector.. Although corporate and family debt is around €1.65 trillion (121.1% of GDP) at the end of the first quarter, data from the Bank of Spain at the end of the first quarter, this debt volume is far from the dizzying levels reached in 2007. the year before the great Spanish “bubble” burst. At that time, private debt amounted to 2.1 trillion euros, which was equivalent to 263.8% of GDP at the time.
From a private debt perspective, and compared to other neighboring countries, Spain faces two weaknesses that make it more vulnerable. to an increase in interest rates. On the individual side, there is a lot going on in Spain. more likely to own a home Rather than rent compared to what is common in Europe, this means a much higher percentage of households that are subject to the ups and downs of the monetary authority’s decisions on the cost of bank loans. And when it comes to Spain’s prototype corporate structure, it’s superior dominance of small and medium enterprises (SMEs) and micro SMEs In the national business census relative to what is common in other European economies, smaller companies tend to have a higher propensity to borrow, leading to Spain’s greater vulnerability. As an Iberinform report has just revealed, the average leverage of micro businesses is 70% of total financing (own and external), falling to 63% for small businesses and 59% for medium and large companies. And Spain is the third country with the highest percentage of micro enterprises in the EU.
The ECB will decide on September 14 whether to give another rate hike or a deadline.. In its latest bulletin, published on the 27th, Eurobank reiterated that even though the cost of living is already falling, inflation in the region will remain “too high for too long” and stressed that it will maintain its restrictive policy until inflation in the eurozone falls. From the current 5.3% to 2%, it points to another possible rate increase at the next board meeting.
ECB chief Christine Lagarde admitted on 28 July that Spain has a low inflation rate – even falling to 1.9% (1.6% at the harmonized rate) after a sharp 1.3 percentage point drop in June – ie. The situation is not well suited to the monetary rigidity imposed from Frankfurt. The central bank, however, defended the ECB, arguing that the situation in Spain was “not a generalized one”.
On the contrary, despite these conditions, Spain is in the leading group of European growth.