The Spanish economy continues its path of deceleration, accusing a loss of remarkable dynamism in its domestic demand. The increase in uncertainty at a global and national level is causing a deterioration of expectations and an increase in the precautionary effect, which is reflected in the evolution of private consumption and investment.

For the remainder of the year, the expected international context will not support a high progress in our exports. In addition, national accounting data show a loss of competitiveness of the Spanish economy, through labor costs and decreased productivity, which can be a brake on growth and job creation.

In this context, we should try to resume as soon as possible the path of structural reforms and a more favorable environment for business investment, which will allow us to increase the potential for long-term growth and favor the competitiveness of our economy.

The Spanish economy, according to the INE, recorded a quarterly increase of 0.4% in the second quarter of 2019, one tenth lower than in the first quarter. In the interannual rate, the growth rate slowed down two tenths to 2.0%. These rates are the lowest recorded since 2014. This data, together with the downward revision of the National Accounting series recently published by the INE, makes it difficult to comply with the previous forecasts, which advanced somewhat more than 2%. , and the new estimates will be 2% or slightly below.

The contribution of internal demand and external demand to the economy is equalized, each one contributing 1 percentage point. Although this means a more balanced growth, it means that the GDP growth is much more conditioned to the evolution of the foreign sector in a context of increased global risks.

In this scenario, the acceleration of labor costs recorded in recent quarters in a context of particularly moderate inflation and productivity due to negative employment, can impair the competitiveness of the Spanish economy and, consequently, the evolution of our exports.

In a first analysis of the results it is worth highlighting:

  • The contribution of domestic demand loses dynamism significantly and stands at 1 percentage point, nine tenths lower than the previous quarter.
  • Investment in equipment recedes in year-on-year terms by -1.7%, accusing the cyclical slowdown and the increase of uncertainty at national and international level. Investment in construction also slows down, although it stands as the most dynamic component of domestic demand (2.9%), thanks to the inertia of the already begun building projects.
  • Household consumption also moderates, while some recovery in the savings rate is observed, which could be indicating an increase in the precautionary effect on families in a context of greater uncertainty.
  • The final consumption expenditure of the Public Administrations, with a real growth of 2.2%, is the most dynamic component of internal demand after construction investment. This upward trend in public spending complicates the fulfillment of the public deficit objective.
  • From the point of view of external flows, the increase in exports together with the slight decline in imports, associated with the slowdown in domestic demand, has allowed the contribution of the foreign sector to increase eight tenths to 1 percentage point. The real drop in imports for the third consecutive quarter may be an indicator of deterioration in domestic demand.
  • On the supply side, the evolution of the construction activity stands out, which continues to register rates above 5%. However, the atony of industrial activity is worrying. • The GDP deflator increases six tenths to 1.8%, which contrasts with a much more moderate CPI rate.
  • Job creation slows down two tenths, with an interannual rate of 2.5%. This represents a net increase of 446,000 full-time equivalent jobs in the last year. By sectors, construction stands out, with a 5% rate, in line with the progress of its activity, and the creation of employment in the manufacturing industry stands out, compared to the fall in the sector's activity.
  • One of the least positive aspects is the evolution of productivity per employee, which is negative for the fifth consecutive quarter (-0.5%). If this is coupled with the rise in salary per employee up to 2.4%, unit labor costs increase by 2.8%, which may imply a loss of competitiveness of the Spanish economy via labor costs.

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