The last Bank of Spain forecasts, which lower growth for 2024 to 1.8% (four tenths less than their previous June projection), are based, among other arguments, on the logic that interest rate increases affect the evolution of GDP. The euro zone has experienced 10 consecutive interest rate hikes since July of last year, the most dizzying trend in its history, so an economic slowdown was one of the expected effects. The big debate is how much longer countries’ economies can resist the current strict monetary policy of the European Central Bank (ECB) to stabilize prices. Although the threat of a recession seems distant, lower economic growth is confirmed. For now, Spain presents better indicators than its neighborsbut it cannot be trusted or considered immune to the European slowdown, especially that of Germany.
Those in favor of rigor in the fight for price stability once again prevailed at the ECB meeting on September 14, when raised rates a quarter of a point, to 4.5%. However, the entity hinted that it could be the last increase. High interest rates affect indebted families (the rise in the Euribor is a clear example), the self-employed, companies and also states (which makes it difficult for them to control public debt). After more than a year with a bullish strategy, voices arise that raise the convenience of, although Do not start the descent now because it would be premature, at least take a break and leave rates unchanged, high enough for a time. The governor of the Bank of Spain, Pablo Hernández de Cos, expressed himself in these terms. The Federal Reserve American decided this Wednesday to keep rates unchanged, following this idea in part, because it did not rule out raising them again before the end of the year. Prudence prevails.
The unknown in the equation is how inflation will evolve. Prices are now the main concern, and all efforts are dedicated to containing inflation with the objective of 2% in the medium term. The ECB’s monetary policy has managed to lower it, but it still remains very high: in August the CPI in the euro zone reached 5.2%. In Spain it was lower (2.6%), but the fact that core inflation (which excludes energy and unprocessed food, which are more volatile) is above 6.1% It doesn’t allow you to let your guard down.
It is striking that the Bank of Spain has revised upwards its inflation forecast for next year to a rate of 4.3%, more than this year, which it attributes to the foreseeable withdrawal of government aid within the measures for the crisis in Ukraine at the end of 2023. These measures (reduction in VAT and subsidies for public transport, among others) were conceived as temporary and exceptional, and it would be up to the future Government to decide what the political strategy will be from now on to face the socioeconomic effects of a longer war conflict than initially planned. In these circumstances, it is appropriate for Spain to emerge from the current political morass and form a Stable government that can face the future economic scenario with the greatest possible strength.