Uncertainty in recovery after pandemic

Euskaraz irakurri: Ziurgabetasuna pandemics osteko susperraldian

Since the beginning of 2021, inflation in the Spanish state has not stopped growing. During the recovery phase after the worst months of the pandemic, the economy was affected by several factors that to some extent mismatched supply and demand of goods and services, causing their prices to become more expensive. Likewise, the transport problems and the Russian “unexpected” invasion of Ukraine The economic situation in Europe has deteriorated, making supply more difficult and energy prices more expensive.

The forecast for economic growth has been revised downwards, confirming a inflation scenario well into 2023 and possibly even 2024, according to the latest EITB DATA study. In this way, pessimism and uncertainty are the majority in Euskadi and Navarra, although their economies remain “strong”, with private financial positions in a better position than before the arrival of the 2008 crisis.

The situation is widespread throughout the eurozone, so the European Central Bank (ECB) has been forced to raise interest rates to cool inflation and the CPI, which stood at 9.1% in the area in August, something that is still a long way from the ECB’s target of lowering it. up to 2%. The reality in Euskadi and Navarra is a bit more worrying, as the CPIs of both areas were 10.3% and 11% respectively.

In the years 2007 and 2021, the increases in CPI were quite similar in Hego Euskal Herria. However, since 2011, this indicator has remained below 2% and even turned negative during the pandemic crisis in 2020until 2021, which with the economic recovery began to escalate across the Spanish state.

Already in 2022, the economy started the year with an inflationary profile, which added to the war in Ukraine and the rise in energy prices. In this way we are currently experiencing a situation of inflation never seen since the 80spartially enhanced by the energy component, according to the EITB DATA study.

The energy, a car going downhill

The prices of the electricity, gas and oil they grow day by day and drag the prices of almost all goods and services with them. Until 2020, the wholesale price of electricity was between 20 and 40 euros/MWh, depending on the country. In the second half of 2021, prices rose to 80-100 euros/MWh, to 308 euros/MWh in 2022.

For consumers, this price increase has had a direct impact on the electricity bill they have taken out with the PVPC rate, because they are exposed to the ups and downs of the wholesale market. As we can see in the following chart, the year 2022 started with price increases, until March, the month with a high; since then the price has fallen, although month after month it has remained higher compared to the same date of the previous year.

Everything indicates that these high prices will stay in Europe due to the shortage of natural gas and the conflict between Russia and Ukraine. Until now, Europe has depended on Russia for its gas supplies, which is why the governments of the area have already started introducing “solutions” to the shortage of this indispensable asset, especially now at the gates of a winter that is expected to be “cold”.

From optimism… to pessimism

Inflation affects economic growth and employment, something that affects all European markets. Similarly, economic expectations in the eurozone have deteriorated, both for productive agents (industry, construction, services and retail) and for consumers.

According to the EITB DATA study, after the pandemic ended, January February this year reached the historic maximum of the economic sentiment index at 13 points; however, with inflation and price escalation, in July August that expectation has turned negative, “anticipating what will happen in the fall-winter economic results.”

In this latest period, industrial expectations in Europe have cooled, predicting that to shrink which became somewhat noticeable in August with the decline in the corporate order book. Both Euskadi and Navarra have open economies with significant export industrial activityso this deterioration will affect the industrial activity of the two communities.

Consumers have already started the year with some pessimism, exacerbated in recent months by inflationary consolidation. In this way, people have started saving and controlling their spending for fear of what might happen in the short to medium term.

New challenge: contain inflation

This change of scenario has forced us to review expectations of economic growth in the Spanish state, resulting in a growth retardation in 2022 and 2023, from 5.5% and 4.4% calculated in the fall of 2021, to 4% and 2.1% respectively revised this summer.

Among the indicators that make up the economic growth scenarios, the projections made with regard to the evolution of inflation stand out. This indicator has been below 2% for the past 20 years and has registered the most relevant revision.

For example, inflation forecasts for this last year have quadrupled the impact of the energy price crisis between the fall of 2021 and the summer of 2022. In addition, this deteriorating forecast has been extended to 2023, putting inflation in the range of 3-4% for most European countries.

The European Central Bank has already begun to mobilize to try to contain the escalation in inflation by raising interest rates; Nevertheless, solve the energy crisis will condition this new economic scenario so that it does not extend until 2024.