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The Fed is considering including yield curve control in its toolkit to respond to the COVID-19 crisis. How effective is YYC and what risks does it pose?

On a positive note, the PMI for the services sector stood at 56.7 points in May, well above the level at which positive growth rates are usually observed (50 points), albeit below the level of the previous two months.

Despite the encouraging signs of recent months, the international economy will continue to operate in an unstable equilibrium within the forecast horizon.

Is the Trump administration’s strategic shift compatible with the United States’ role as a guarantor of the international economic equilibrium?

The indicators that have been published during the opening months of the year paint a picture of a buoyant Spanish economy in Q1 2025, albeit with a slightly less vigorous growth rate than in the previous quarter.

The resistance exhibited by international economic activity, the reduction of uncertainty and the improvement in growth projections indicate a better immediate outlook. However, the world economy is not out of the woods yet. 

Broadly speaking, there are three key factors which define the new macroeconomic picture of the Spanish economy that we have elaborated here at CaixaBank Research, and which are shared by most of the institutions that have updated their forecasts.

The devastation caused by the floods could subtract between 10 and 20 basis points from Spain’s GDP in Q4 2024. This estimate is subject to a high degree of uncertainty and assumes a significant impact on Valencia’s primary sector, a moderate impact on its industry and a milder impact on trade. The estimate for 2025 will depend largely on the scale of the investments allocated to reconstruction and the replenishment of the capital destroyed in the floods, as well as on the support measures that are implemented.

The energy crisis has served as an incentive within the EU to accelerate the transition to energy sources that are more environmentally friendly and less dependent on fossil fuels, but this is seen as more of a medium-term goal.

This year’s return to fiscal rules – as safeguards of the sustainability of public debt – and the persistent shortfall in investment needed to address the EU’s priorities in the current geopolitical context create a scenario marked by frictions that requires a coordinated fiscal strategy that far exceeds the horizon of national and EU political mandates, both in duration and ambition. Therefore, it is essential that the differences that exist, as well as some taboos that have characterised the EU’s economic history on other occasions, are overcome.

It has been almost four months since our last update to the macroeconomic scenario. During these months, the Spanish economy has shown a more resilient tone than expected. Furthermore, the normalisation of gas prices, although incomplete, has been confirmed and the peak in reference interest rates is now in sight. Faced with all these changes, we have updated our macro forecast scenario.