Gloomier prospects. The European Central Bank (ECB) casts a shadow over the pace of the economy ahead of the second half of the year in its latest monthly Economic Bulletin. “The inflation remains undesirably high and is expected to remain above the governing council’s target [del BCE] for some time. The latest data indicates a slowdown in growthclouding the outlook for the second half of 2022 and beyond.”
The entity that applied at its July meeting a 0.50 point rise in interest ratesafter announcing that it would be 0.25, the last and a mechanism to stop the escalation of risk premiums of the debt of the countries, affects the effect produced by the general rise in prices, which in Spain stood at 10.8% in July, at the level of 38 years ago and at 8.6% in June in the euro zone.
In Spain, where food weighs more than the European average in the shopping basket, prices have skyrocketed more. An example is oil, which in a year and a half has climbed more than 56% and cereals have become 17% more expensive, dairy products and eggs, 16%, and meat, 10% during the same period, for above the European average, according to a study by the Bank of Spain on the impact of the rise in food raw materials on final prices.
The report underlines that “economic activity in the euro area is slowing down” and that “Russia’s unjustified aggression towards Ukraine is a continuing drag on growth”. In this sense, he highlights the brake on growth that the escalation of inflation supposes, as well as “the continuous supply constraints and increased uncertainty“. And he warns that companies continue to face higher costs and disruptions to your supply chainsalthough there are signs that some of the supply bottlenecks are being eased.
Throughout the second and third quarters, in any case, economic activity continued to benefit from the reopening of the economy, which was essentially supported the service sector; a strong labor market and the support of fiscal policy. “As people begin to travel again, it is expected that the sightseeing help the economy in the third quarter of this year. Consumption is being supported by the savings that households accumulated during the pandemic and by a strong labor market,” he adds.
In turn, fiscal policy is helping to cushion the impact of the war in Ukraine for those who are those most affected by higher energy prices. In any case, temporary and specific measures must be designed to limit the risk of fueling inflationary pressures,” he warns.
Lower industrial growth
In June, Purchasing Managers’ Index (PMI) of manufacturing production indicated a contraction for the first time since June 2020, falling below 50. This indicated weakening activity in the manufacturing sector, particularly due to severe supply chain disruptions, high commodity prices as a result of the Russian invasion of Ukraine and the increase in general uncertainty.
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In addition, the new manufacturing orders PMI continued to fall in June, while the PMI supplier lead times showed that although supply bottlenecks remained firm in June, they eased somewhat. In contrast, the activity in the service sector it recovered in the second quarter of 2022 and is estimated to strengthen further in the third quarter.
The European Commission’s Economic Sentiment Indicator (ESI) decreased slightly in June, indicating a slowdown in growth in the second quarter. While business confidence improved somewhat in manufacturing and services, it deteriorated in the retail and construction sectors. Reflecting persistent concerns about high inflation amid heightened uncertainty and severe supply chain disruptions, consumer confidence fell further in July to a level lower than that recorded at the beginning of the covid-19 crisis.