Prices: The winter that does not arrive

We are facing a better-than-expected end of the year. Growth forecasts for the remainder of the course are much better than those made at the end of the summer. At that time, we were facing a high risk of the central European economies collapsing due to gas prices that reached maximums at the end of August and whose shock wave we would inevitably feel. Meanwhile, in its own territory, the effects of runaway inflation and the already pressing increase in the Euribor were being felt, which put downward pressure on consumption whose data was not the best. With the heat and the sun, the tourists saved us, as well as the occasional item in the macroeconomic picture, but the future did not look rosier.

And suddenly, the gas went down. To give us an idea, the price of TTF gas, the reference market for a large part of the purchases and sales of this fuel throughout Europe, went from 340 euros per megawatt hour to a minimum at the end of November below of the 100. After this, the definitive arrival of winter and the announcement, also definitive, that Nord Stream will not open in the rest of the cold months caused it to rebound, although moderately and partially, to an average of the last days of 130 euros. Despite this new rise, the price of gas is still well below what we imagined at the beginning of autumn. Add to this a cap on gas which, in terms of its objective, which is to avoid greater evils in electricity prices, is more or less working; in addition to a drop in the price of Brent crude oil to levels of last January. Finally, the price of many other raw materials returned to 2021 levels, as well as the price at origin of many foods, which should be reflected in final prices in the immediate future. Add to this cocktail the appreciation of the euro, which has further helped to reduce the pressure from imported prices.

To all this we must add an increase in investments motivated by the acceleration of the execution of European funds, which, although still marginal, should already be contributing growth. All of this has happened in the space of a few weeks, thereby causing the future prospects of the Spanish economy to have improved substantially.

Partly due to this, since the end of August the indicators that have caused the greatest positive surprises have been those that we expected would bring down the economy: trade and consumption. In particular, these surprises have been substantially positive for the month of October. But, together with them, indicators associated with the evolution of the labor market have been particularly positive, especially in the month of November. Thus, with few indicators a good part of the change in growth estimates can be explained. In September the consensus was for a contraction of a few tenths of a point for GDP in the fourth quarter of this year, specifically between half a point and two tenths. However, today, this same consensus is betting on an expansion, even greater than in the third quarter, and currently located at around four tenths. It is true that the quarter is not yet over and that these estimates will change as soon as the information is updated, but the evolution from negative to positive suggests the existence of underlying changes that have occurred in our economy in these last few weeks.

This improvement has also contaminated the outlook for 2023. Last week the BBVA Research research service improved the growth forecasts for the Spanish economy for that year. Until that publication, all the previous ones had been punished with negative corrections. Thus, if nothing changes, it is very likely that, if the aforementioned price developments do not deteriorate substantially, such positive corrections will be the norm for at least a few months.

However, it is necessary to maintain containment and prudence. We live in times of great uncertainty and the volatility of a large part of the prices is very high. Said volatility is not the best to stabilize the economy and any accident can return us to pessimism. On the other hand, the tightening of financial conditions will last and, finally, the correction in prices will not bring all of them to the levels of mid-2021, so the consequences for productive activity, in particular manufacturing will continue to be negative. However, at least, and for now, it seems that (economic) winter has not yet arrived.