Uncertainty in post-pandemic recovery

Euskaraz irakurri: Ziurgabetasuna pandemicren osteko susperraldian

Since the beginning of 2021, inflation has not stopped growing in the Spanish State. During the recovery phase after the hardest months of the pandemic, the economy has been compromised by several factors that have, to a certain extent, misaligned the supply and demand of goods and services, making their prices more expensive. Likewise, the transportation problems and the Russian “unexpected” invasion of Ukraine The economic situation in Europe has worsened, which has begun to make supply difficult and make energy prices more expensive.

The forecast for economic growth has been revised downwards, thus confirming a inflation scenario until well into 2023, and it may even extend into 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 a better private financial position than before the arrival of the 2008 crisis.

The situation is widespread throughout the euro zone, 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 still far from the ECB’s objective, which seeks to lower it to two %. The reality in Euskadi and Navarra is somewhat more worrying, since the CPIs of both territories marked 10.3% and 11% respectively.

In the years 2007 and 2021, the increases in the CPI have been quite similar in Hego Euskal Herria. However, since 2011 this indicator has remained below 2%, even becoming negative during the pandemic crisis in 2020until 2021, which, with the economic recovery, began its escalation throughout the whole of the Spanish State.

Already in 2022, the economy started the year with an inflationary profile, adding to the bandwagon the war in Ukraine and the increase in energy prices. In this way, we are currently experiencing a situation of inflation never seen since the 80sin part, reinforced 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, dragging with them the prices of almost all goods and services. Until 2020, the wholesale price of electricity was between 20 and 40 euros/MWh, depending on the country. During the second half of 2021, prices rose to 80-100 euros/MWh, reaching 308 euros/MWh in 2022.

For consumers, this price increase has had a direct impact on the electricity bills that they have contracted with the PVPC rate, since they are exposed to the ups and downs of the wholesale market. As we can see in the following graph, the year 2022 began with price increases, until March, which is the month that peaked; since then, the price has been falling, although it has remained higher month after month compared to the same date of the previous year.

Everything indicates that these high prices will remain 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 supply, which is why the governments of the area have already started to put in place “solutions” to the shortage of this indispensable good, 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 is affecting all european markets. Likewise, economic expectations in the euro zone have deteriorated, both for productive agents (industry, construction, services and retail trade) and for consumers.

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

In this last period, industrial expectations in Europe have cooled down, predicting a decrease which has begun to be slightly noticeable in August with the reduction of the order book in companies. Both Euskadi and Navarra have open economies with a significant export industrial activityso this deterioration will affect the industrial activity of the two communities.

As for consumers, they have already started the year with some pessimism, aggravated in recent months by inflationary consolidation. In this way, people have begun to save and contain their expenses for fear of what might happen in the short-medium term.

New challenge: contain inflation

This change of scenario has forced us to revise the expectations of economic growth in the Spanish State, leaving as a result a growth slowdown in 2022 and 2023, from 5.5% and 4.4% calculated in autumn 2021, to 4% and 2.1% revised this summer, respectively.

Among the indicators that make up the economic growth scenarios, the forecasts that are made in relation to the evolution of inflation stand out. This indicator has been less than 2% during the last 20 years, and it is the one that has registered the most relevant revision.

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

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