In just 12 months, households have become more concerned about inflation, mortgages and savings than they have in years
The first bombing by Russian troops on the border with Ukraine, on February 24, 2022, completely turned all domestic economies upside down. None of the concerns the Spaniards had a year ago remain in their retinas. All eyes were then on how they would emerge from the corona crisis; of when the restrictions that stifled many businesses would end and how many tourists would come to cope for the rest of the year. That is no longer the priority. It is now about knowing how much the liter of oil has increased when we go to the supermarket, which revision will contain the letter from the bank informing me of the increase in the mortgage; or what is the gas or electricity rate I have to take out to avoid a bill of 400 euros.
The economic war has brought a very different reality to the table than a year ago. It has dethroned all the pillars of the expensive economy: it has run amok with prices, with high energy costs, rising interest rates and expensive debt. But above all, it has created uncertainty in all possible variables, even in those that have not disappointed, such as employment.
The last time many families talked about the Euribor in their daily conversations was ten years ago, when the Supreme Court nullified a large part of the ground clauses that contain part of the mortgages. At that time, these credits were not yet fully benefiting from the 0% rates and the negative index. The Euribor has been the economic variable that has undergone several dizzying script twists since the start of the war, going from -0.4% to the current 3.5%. Four percentage points that unbalance even the best possible domestic budget. In some cases, the increases in monthly costs exceed 300 euros per month. And there are no signs that the escalation will stop.
The European Central Bank (ECB) will raise interest rates on March 14. And the Euribor hits 4% in June. With this appearance, citizens are rebuilding their accounts, having to allocate much more money to pay the mortgage than they have done so far. While there are no magic solutions, those most affected have started to move. Some households are interested in switching to a mortgage with a fixed interest rate. The legislation allows you to process it at almost no cost, although you should always pay attention to the rate of interest that is assumed and what the last installment will be to avoid drowning a family. The government and the bank also agreed this year to facilitate mortgage restructuring and ease the monthly payment. For the time being, defaults are contained: delinquencies barely reach 3%.
The queues at the Bank of Spain to buy debt are the paradigm of the new economic phase. Throughout February, hundreds of citizens crowded the doors of the regulator’s various headquarters (in Madrid, but also in the rest of Spain) to buy treasury bills. A product almost forgotten by investors that has put the current crisis in Ukraine back on the table. Because the interest on these products for a year ahead is almost 3%, far from the annual fee that banks pay on deposits, which is barely 0.64%. The deposits, which have been profitably zero for years, continue without starting. Banks prefer to promote other types of products, such as investment funds, despite the fact that Spaniards have already saved more than 1.5 trillion euros in bank balances.
If there’s one metric that’s gotten a star in the year, it’s inflation and the consumer price index (CPI). They were parked until the end of 2021, but little by little prices started to rise and all Spaniards started to notice it in their wallets. And the outbreak of war only made the situation worse. But little by little it spread like an oil raft to food due to the rise in the prices of fertilizers, energy, transport and the grain that was missing in Ukraine. Ultimately, the underlying rate is – more structural and difficult to calm down. Spain registered an inflation rate of 0.5% in January 2021. A year later, it climbed to 7.6%, with a core at 3%. And now it’s 5.9% – underlying 7.5% – although it peaked at 10.8% in July. You have to go back to the 80’s to find similar records.
What is the best possible rate? For an average household, previously unaware of the contract it had signed with its electric or gas company (70% don’t know, according to the CNMC), asking this question was beyond trauma. Especially after they had to take into account monthly receipts of up to 300 or 400 euros, three or four times more than what they used to pay. If the civilians have noticed anything about the war, it is in the energy. Even with the threat of a lack of supply, as happened in the first weeks of the conflict in 2022.
Finally there has been no blackout like the one Germany and Austria trained for. But in exchange for that delivery guarantee, being able to turn on the switch has turned out to be expensive, much more expensive. The tension in the market was so great that Spain came to propose an intervention (the Iberian exception), not to make prices fall, but at least not to rise as much as in the rest of Europe in the summer. The energy sector is the one most affected by the war: selling price restrictions, subsidies and even a new tax on profits fallen from the sky. Europe never imagined that the public role would reach that level in a market economy.
Against all odds, the labor market, accustomed to being quickly infected with some uncertainty, has shown unusual resilience throughout much of 2022. In the four months following the Russian invasion, 650,000 jobs were created, giving Social Security a record number of contributors, surpassing 20.3 million for the first time in history.
Since the summer, however, it has been losing momentum by losing nearly 270,000 affiliates. The growth rate has dropped significantly from the initial 4.5% to the final 1.4%, according to the EPA. The moment of strong recovery seems to have passed and now the war in Ukraine is making itself felt in employment, which is showing a sharp slowdown, while the number of unemployed has once again risen above three million. It will have to be verified whether employment will maintain this resistance.
Equities are one of the most resilient in Europe since the outbreak of war in Ukraine. On February 24, 2022, the Ibex-35 suffered a fall of almost 3%, below the 4% recorded in Germany or France. But the sales panic left the roster shivering at 8,198 points, the lowest level in a year. Since that day, investors have avoided the uncertainty with a cumulative 12% increase and it is trading at 9,200 points. And the figure is bigger compared to the March lows (7,600 points), when geopolitical tension was all-out. Despite this rapid recovery, investor sentiment has radically changed the conflict. The fact that both risky and safer assets caused heavy losses in 2022 means that the words “caution” and “uncertainty” should always be present in any type of decision.
Spain ended a difficult year with a GDP growth of 5.5%. Not only analysts surprised, but also the government itself, which predicted an increase of 4.4%. But that closure is nothing more than a still photo. The evolution was not free from alarms such as that of the Tax and Customs Administration, which predicted a recession after the summer. September was called out to be apocalyptic. It wasn’t. Although Spain is one of the few EU countries whose GDP has not yet reached pre-pandemic levels.
Disability is also referred to as debt. The economy has managed to reduce the percentage to GDP to 113%, five points less than a year ago. But the Treasury has exceeded 1.5 trillion euros in public debt. And Social Security, the 100,000 million.
The first and major concern of citizens as soon as they found out that Putin had started his particular invasion of Ukraine was to look at the price of fuel. Because since the end of 2021, refueling at a gas station has become increasingly expensive. The sensitivity of the Spaniards with petrol and diesel was shock resistant. But no one could have imagined that these costs would rise above two euros per litre, as happened in the summer.
Before the summer holidays came, prices started to rise like foam. In mid-March last year, diesel cost 1.5 euros per liter and petrol more than 1.6 euros per liter. The rest of the European partners started approving aid so that their citizens could face ever-increasing fuel bills. In Spain, the Executive responded a month later, and did so with an initiative that tried to put out the fire caused by the carrier strike, which threatened almost the entire economy that month: support of 20 cents per liter tanked. Without distinction according to income and without spending limit.
Overnight, the prices of the pumps saw their costs drop by that 20 cents, plus the support the oil companies themselves put on the table, close to an additional 10 cents per liter. The measure, intended for three months, was extended with the arrival of summer, just as the fuel price reached its record, above two euros per litre. There were gas stations that didn’t have the number ‘2’ enabled on their automatic signs. Because gasoline or diesel never reached those limits.
The course of the summer sounded the first alarm bells in the Treasury: fuel expenditure, far from moderating, continued to rise. And what the State planned to spend with this aid (about 4 billion euros until the end of the year) became 6 billion. For everyone, including foreign tourists who arrived in Spain by car in 2022.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
