Oil, rates, withdrawal of the social shield and climate challenged the resilience of consumption

Update Post: November 28, 2023 9:52 am

Household consumption is still one point below the levels recorded before the coronavirus pandemic broke out and, however, it remains one of the variables that best reflects the resilience of the Spanish economy to an increasingly . more complex due to the rise in interest rates, the weakness of the main trading partners, the rise in energy prices or the persistence of underlying inflation. The National Institute of Statistics (INE) has confirmed that the GDP advanced between April and June one tenth more than expected, at 0.5%, and it did so thanks to the increase in demand from families, as well as the evolution of the employment. of public spending and investment in construction.

Specifically, household consumption grew by 0.3% in the first quarter and 0.9% in the second (it had contracted by 1.6% at the end of last year) in a context in which prices Food prices have continued to rise strongly and in which families with variable mortgages have seen how their monthly payment already reflects a notable part of the rate increase. Only a part, since this is transferred with a certain delay to the credits, depending on when and how they review. The photograph of the first semester shows, in any case, a very favorable snapshot for this indicator, contrary to what is already happening in other neighboring economies. “The differential in the year-on-year increase in private consumption in Spain with the rest of Europe is quite wide,” say sources from the Ministry of Economic Affairs.

The same sources explain the resistance of this variable by the evolution of the labor market, which added 576,000 full-time jobs in the last year (its increase is accelerating in relation to previous quarters), by the reduction in temporary employment and by the improvement in skilled employment. Economists have spoken on numerous occasions of the strong assessment that exists between the evolution of employment and consumption and the Bank of Spain itself recently pointed out that the conversion from temporary to permanent contracts would have had an impact on consumption of between 2,000 and 3,000 million of euros in the first year of application of the labor reform, in 2022.

In Economic Affairs they also attribute the good tone of private demand to the social shield of 50,000 million euros deployed as a result of the energy and inflation crises and the war in Ukraine. Those intended to alleviate the rise in prices (tax reductions on electricity, gas and food, the measure on fuel or free public transport) and those focused on maintaining income (Minimum Vital Income, increase of the Minimum Wage or increase in contributory pensions) would have allowed households to maintain consumption.

The extraordinary measures have especially benefited families with lower income, who are those with a greater propensity to consume, as Antonio Sanabria, economist and researcher at the Complutense Institute of International Studies (ICEI), explains to this newspaper. In his opinion, one of the keys related to this is the evolution that has occurred in salaries by income deciles, given that between 2018 and 2021 salaries increased more strongly (18.9%) among the 10% of the population that earns the least. “It is reasonable to think that this trend has continued” in 2022 and beyond, as these are precisely the sectors that benefit the most from this social shield.

Winter, types or the withdrawal of the social shield, in focus

However, the unknown is what will happen in the future when, as CaixaBank Research points out, the evolution of various indicators points to a loss of momentum in activity in the coming months, in a context of still high inflation. Sanabria Points Out, Specifically, The Effect That The Increase In Fuel Prices Could Have On Consumption – Which Will Go Due To The Perspective Of Tensions In The International Oil Markets -, As Well As The Possibility That The Invorno Will Be Colder Than previous. The fact that temperatures were unusually high at that time last year helped ease the energy crisis worsened by Russia’s invasion of Ukraine.

Lower temperatures will put upward pressure on energy and this will also end up affecting the price of food, which will not completely moderate. With winter will also come a more than likely cooling of the labor market as the greatest impact of the rate rise on the economy is recorded, which, according to the Bank of Spain, will subtract 1.2 points from growth in 2024, and Also once all anti-crisis measures will be withdrawn on January 1. One option would be, according to Antonio Sanabria, to remain focused on the most vulnerable groups. It will not be easy to do so due to the bureaucratic procedures necessary to request them and the time this will require. The aid could arrive too late to the families who need it.

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September 24, 2023 1:26 pm