The Spanish economy rides out the storm clouds in the closing stages of the year
The emergence of the new variant has led to a rebound in uncertainty, a tightening of global restrictions, and volatility in the financial markets. In addition, there has been an increase in infections in Europe. Despite these adverse developments, the epidemiological situation in Spain remains under control and better than in other European economies with lower vaccination rates, where the cumulative incidence is increasing more sharply (such as in Germany or Austria). However, the indicators for national infections and hospital pressure are picking up slightly, although they remain at moderate levels. Thus, the cumulative incidence at the end of November stood at around 200 infections per 100,000 inhabitants (moderate level of risk). The mortality rate, meanwhile, remains very low thanks to the great success of the vaccination campaign. Although we can talk about a «sixth wave», the high vaccination percentage among the population means that this wave will be less virulent than the previous ones. It is true that some restrictions, of a precise and selective nature, could be imposed in some autonomous community regions with a view to ensuring a relatively normal Christmas, but we will not see a return to the widespread mobility restrictions that were in place during the state of emergency. In addition, booster doses have already begun to be administered among the most at-risk groups. On the economic front, the current global epidemiological situation could have a certain impact on our economy through the aforementioned rebound in uncertainty or disruption to global trade and tourist flows.
Following the encouraging GDP figure for Q3 (a notable 2.0% quarter-on-quarter growth, albeit lower than expected), we expect the economy to continue to grow at a good pace over the coming quarters. However, the fact that the Q3 figure was lower than expected as well as the factors currently affecting the economy – rising inflation due to the energy component and supply chain disruptions – lead us to revise our 2021 GDP growth forecast down to 4.4%. Looking ahead to 2022, we expect that in Q1 the economy will still be somewhat hampered by the energy storm and bottlenecks, but the situation should improve beginning in Q2 with the recovery in tourism and the boost from NGEU. We anticipate growth of 5.9%, such that GDP will return to its pre-pandemic level by the end of 2022.
In particular, the data coming from the labour market are especially promising: effective employment – excluding those on furlough – has already recovered to pre-pandemic levels. The recovery in the labour market is even showing greater vigour than that of GDP. Thus, while employment in Q3 approached the pre-COVID level, GDP was still 6.6% below (–0.5% in the euro area). This divergence has led to a drop in productivity, which should be corrected in 2022. Industrial production, meanwhile, remains fairly stagnant, eroded by the supply crisis that is particularly affecting durable goods. Added to this is the pressure that some industries are suffering due to the increase in energy costs, which in many cases they are unable to pass on to consumers. The PMIs remain in an expansionary territory. That said, in the current context marked by supply problems and low stocks of some products, the data should be interpreted with caution. Finally, the tourism sector continues to emit positive signals, and domestic tourists already exceeded pre-COVID levels by 8.4% in October. This stands in contrast to the level of foreign tourists (–33.5%), although the trend is one of rapid recovery (–47% in September). Let us hope that the rise in infections in Europe and the new Omicron variant will not truncate this very positive dynamic.
In November, headline inflation rose to 5.6% (5.4% in October), its highest level since September 1992. Core inflation, meanwhile, continued to climb and reached 1.7% (1.4% in October). The high electricity prices (which have increased almost five-fold compared to November 2020) remain the main cause of inflation, although they have moderated in the last month (–3.3% compared to October). Of particular note is the rise already observed in November in food prices (an energy-intensive sector), and over the coming months the increase in energy prices could also affect services and industrial goods. For 2022, we expect inflation to remain above 4% until Q2, when it will begin to quickly moderate due the comparison with the rise in the latter stages of 2021. Thus, we expect the annual average in 2022 to be around 3%. Core inflation will continue to rise until mid-2022, and we expect it to average around 2% in 2022.
The public deficit in 2021 will still be very considerable, although the high tax collections – tax revenues for the year to date are clearly above forecasts and grew by 13.9% year-on-year to Q3 and by 4.4% compared to 2019 – will allow it to fall below 8.0% of GDP (10.1% in 2020 excluding Sareb). As early as 2022, the deficit will fall to slightly above 5.0% thanks to the cyclical improvement in the economy. Despite this improvement, public debt will remain high in 2022, well above 115% of GDP, hence the need to continue to reduce the deficit and clean up the public accounts in the medium term. The European Commission’s forecasts do not differ much from this scenario and also show that the structural deficit will remain high. However, the Commission has given the green light to the 2022 budget plan presented by the Spanish government, in a context marked by the suspension of the fiscal rules.
The valuation price of unsubsidised housing rose by a significant 0.8% quarter-on-quarter in Q3 2021 (2.6% year-on-year), thus exceeding the pre-crisis level (+0.5% compared to Q4 2019). It should be noted that home sales were also highly buoyant, largely because of the effect of pent-up demand created during the pandemic. On the other hand, the supply of housing has joined the recovery, albeit at a slower pace, and has plenty of room to expand in 2022. It is also noteworthy that this good market performance is framed by sound fundamentals (without excessive levels of supply or debt).