Prices will stifle consumption of households, who will spend more money in the basket and keep their savings due to the high uncertainty
The second half of 2022 will not be as good as expected. Economic organizations wrongly assumed that the impact of the war in Ukraine would be limited to the first months of the year, but already submerged in June has shown that this is not the case.
Last week, from the World Bank to the Bank of Spain, through the OECD, they agreed to point out that it will take months for the extremely high inflation that our country is battling to moderate, especially now that the large rise the energy sector at the outbreak of the war has shifted to goods and services as a whole, causing the largest rise in core inflation since the 1990s.
And this price crisis will have a direct impact on Spain’s economic recovery, which began to see the light after overcoming the most difficult part of the pandemic. The calculations are unanimous: the country will not return to the economic level of 2019 until 2024. It will take five years for the GDP to reach the strength of the pre-health crisis, which caused it to collapse by almost 11% in 2020 and that, due to the loop of bad news in which we are immersed, have not let it overcome in the foreseen period. Thus, according to the OECD, Spain will be the only country of the 40 to analyze that it will not recover pre-crisis GDP until 2024.
In addition, some analysts are also unsure that the 24th will be the year of full recovery: “International instability does not allow us to clearly see a global economic recovery at pre-pandemic levels, it is still too early,” explains Fréderic Mertens from Wilmars. ., professor and coordinator of the degree in International Relations at the European University of Valencia.
The most alarming estimate is that of the OECD, which predicts an average inflation rate of 8.1% in Spain for this year and 4.8% for the following year. And maximum prices inevitably mean minimum consumption. “Spanish citizens will think twice before buying or investing, as many already have to spend part of their savings on the basic needs of food, energy (electricity and petrol) and means of transport,” the economist says. Knowing how long we will last is the biggest unknown: “Let’s not forget that middle-class consumers are the most affected, who are also the engine of our economy,” he explains.
The Director of the Economic Situation of Funcas, Raymond Torres, says that consumption is already starting to suffer. According to INE data, it has fallen by more than 3% in the first quarter and, he explains, “the blow would have been more severe had it not been for the savings, as wages are falling in real terms.” A savings bag that, on the other hand, loses value due to high inflation.
In its latest forecasts, the Bank of Spain assumes that it did not foresee the collapse in demand observed since the beginning of the year. Their forecasts indicate that household consumption will grow by just 1.4% this year, compared to 4.5% just three months ago. But it is that the OECD is moving forward and is anticipating a near-zero growth in consumption, of 0.1% for this year, when a strong boost was previously expected from the release of excess savings due to the pandemic.
Hopes are pinned on the recovery of employment, which shows a good evolution, so that the state receives a higher income through social contributions and consumption does not collapse. Tourism will be the leg on which the greatest weight of Spain’s economic recovery will fall.
But it should be clear that this is not just a Spanish problem. “The whole world is paying a “high price for Russia’s war against Ukraine,” the OECD said in its latest report, detailing that the group of countries that make up the organization will end the year with an average inflation rate of 8.5% and that this percentage will only fall to 6% in 2023, which opens the door to a “recession”, they condemn. And it is that the global economy will only grow by 3% this year, one and a half points below what was forecast just before the Next year, growth will slow further to 2.8%. “Each day that passes increases the food crisis threatening the world, with famines in some countries and widespread increases in food prices in industrialized countries,” says Mertens van Wilmars.
In these circumstances, a new concept emerges: stagflation, a cocktail of relatively high unemployment, slow economic growth and high inflation. The professor at the European University of Valencia assures that the world economy must avoid a 1970s-style eruption of stagflation because of the severe consequences this phase entails.
The Funcas economist, for his part, acknowledges that it is a risk on the table, but to a lesser extent in Spain than in other neighboring countries. This is due to the availability of regasification plants, which make it possible to maintain the gas supply even if Russian exports stop, apart from the “oxygen balloon” that the tourism sector represents for us. Only time will tell how the decade some have dubbed the “roaring 20s” unfolds.
Faced with a situation of economic stagnation due to high inflation, tourism is positioned as -the only- “oxygen ball” for Spain’s recovery from the pandemic. The Director of the Economic Situation of Funcas, Raymond Torres, explains, but the data supports him: the planned plane seats for July and August exceed 32.4 million, that is, only 6% remain to get the figures from 2019, a year that was also a record for tourism, according to the latest data from Turespaña.
“After an exceptional Easter, we are entering the summer season with good prospects and moving closer to pre-pandemic normality,” said the Minister of Industry, Trade and Tourism, Reyes Maroto, after taking note of these figures. In addition, he pointed out that Spain “confirms itself this summer as one of the world’s most sought-after destinations, demonstrating the good health of the holiday segment.”
In fact, several markets that send tourists to Spain are already registering numbers that are higher than those seen before the pandemic. Mexico is 17.3% above 2019 figures, Austria 7.1%; Norway 6.9% and Denmark 6.2%. Poland also registered positive variations compared to three years ago (2.3%), as did France, the Netherlands and Portugal, which grew by 1.8% compared to 2019.
In addition, the planned capacities of two key markets, such as the United Kingdom and Germany, are already showing recovery levels of 92.2% and 91.5% respectively, Turespaña said.
Economic organizations rely on this good data to ensure that tourism becomes the mainstay of the recovery. The rating agency Fitch Ratings pointed out in its report last Friday that after a first quarter of general decline in economic indicators, it is confident that the situation will improve in the second half of the year “thanks to the recovery in tourism, which will boost exports”.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
