Anti-crisis plans and EU funds accelerate the Spanish economy

The Spanish economy not only avoids catastrophe, but will close 2022 with GDP growth of more than 5% per year. The figure, which was already circulating in economic study centers, was ratified last Tuesday by the Prime Minister, Pedro Sánchez, during his speech to make an economic balance of the year. Spain has resisted a year full of uncertainties unleashed as a result of the Russian invasion of Ukraine. The war fueled the energy crisis, which woke up the inflation monster, which in turn precipitated interest rate hikes by central banks. Meanwhile, the pocket of the families did nothing but dwindle. The photograph illuminated a winter full of thunderclouds, but these have not finished unloading and causing a storm. At least until now.

In the spring, after Vladimir Putin’s decision to invade Ukraine, the main international organizations and analyst houses rushed to revise their forecasts downward. And in the summer, bets on the Spanish economy taking the flu in the second half of the year were on the rise. But the reality is that the last quarter will end with weak but positive growth. The Fiscal Authority forecasts that GDP will grow by 0.3% between October and December.

The reasons for this unforeseen solidity can be found in several factors. On the one hand, the vigorous recovery in tourism and the removal of all restrictions due to the pandemic have kept the pulse of activity going. In the first 10 months of the year, more than 63 million foreign tourists arrived in Spain, more than 84% of the figures for the same period of the pre-covid year. “Maintaining the recovery in this environment has been possible thanks to the exceptional performance of the service sector, mainly tourism, which has allowed the economy to generate more than enough income to offset energy costs,” BBVA Research pointed out a few days ago.

More than 30,000 million mobilized

On the other hand, the Government has approved up to five packages of measures to curb inflation, with which it has mobilized more than 30,000 million euros between tax cuts, fuel subsidies and aid to families and companies, as described in the royal decree of measures against the crisis published this Wednesday by the State official newsletter. Just lowering the VAT on electricity, suspending the generation tax and minimizing the special tax on electricity production has a cost of 6,149 million euros until November, according to data from the Tax Agency. The discount of 20 cents on fuel for all drivers has meant a public outlay of 4,832 million so far, according to the State Administration Intervention. Another 1,500 million have meant aid to transport professionals. To this should be added more than 250 million to finance aid for public transport and 540 million from the 200-euro check for vulnerable families, among other measures. “These initiatives have undoubtedly had an effect on growth, but the key is that they have been dosed so as not to feed inflation,” explains Matilde Mas, professor at the University of Valencia and Ivie researcher. “They have been creative. They have known how to handle expectations and uncertainties well,” she adds.

From the Ministry of Economic Affairs, they emphasize that the five packages of measures that have been approved in 2022 were mainly aimed at containing the escalation of prices, the main effect of which is that it impoverishes citizens. “The economic policy response has been effective because it has managed to lower inflation and lower energy prices,” explains Gonzalo García Andrés, Secretary of State for the Economy. “From the point of view of activity, we have cushioned the effect of inflation on disposable income and this is seen in the behavior of consumption,” he adds. The economist José Carlos Díez agrees with this vision: “Consumption should have suffered a drop of close to 3%, however, now analyst forecasts show growth of 1.7%. What the fiscal policy, which has been expansive, has done has been to cushion the blow and that is why consumption has endured”, explains the professor from the University of Alcalá. Energy measures such as the Iberian exception, which contain the price of electricity, have also helped curb inflation.

Use of savings accumulated in the pandemic

Raymond Torres, director of the Funcas situation, maintains that the main driving factor this year has been that families have taken advantage of the excess savings accumulated in the pandemic. “Households have used all the stored savings and have managed to get through the year.” But he warns: “From now on they will no longer have that mattress.” Torres considers that public aid was aimed, above all, at mitigating the blow of inflation and alleviating the loss of purchasing power of families. And he gives the example of energy tax cuts. “They have had a direct impact on the price and have helped contain the loss of purchasing power of families,” he argues.

García Andrés also highlights the role of European funds. He explains that calls for 22,000 million euros have been resolved this year. Although BBVA Research warns that only 7,000 million have been awarded. “The growth in investment could not be understood if the money from European funds had not reached the companies,” says the Secretary of State. He calculates that the money coming from the EU has increased the level of GDP by 1.9% this year compared to the inertial scenario. “The momentum will be bigger in 2023 and in 2024″, he says. And he remembers that the most pessimistic forecasts about the economy had to do with the premise that there would be gas rationing in Europe this winter. “That risk has dissipated,” he says.

Matilde Mas values the role of the European Union during this crisis: “It has played a more dynamic role. The Next Generation backgrounds were well designed. The suspension of fiscal rules have been decisive. But we must not forget that all this must be returned and, even if it is at a lower cost, it will be necessary to return to fiscal discipline”.